Number theory: How to read today’s inflation numbers

Episodes of inflationary spike in India have often been driven by a sharp jump in non-core inflation.

The National Statistical Office (NSO) will release the June numbers for Consumer Price Index (CPI), India’s benchmark retail inflation measure, on Monday. A Reuters forecast of economists expects CPI to grow at 6.58% on a year-on-year basis in the month of June. If true, this will be the highest inflation number since the November 2020 value of 6.9%. This will also make June the second consecutive month when retail inflation will be higher than the upper limit of the Reserve Bank of India’s tolerance band of 6%. Here are five charts that can help make sense of the latest inflation numbers.

A Reuters forecast of economists expects CPI to grow at 6.58% on a year-on-year basis in the month of June. (Mint Photo)

Core inflation in May was at 6.5% and the non-core component was at 6%.(Hindustan Times)

To be sure, international inflation for edible oil seems to have peaked in May 2021.(Hindustan Times)

3. Services inflation could increase as the economy unlocks and demand picks up

The inflation for the miscellaneous category grew at 7.5% in the month of May 2021, the highest value since March 2013.(Hindustan Times)

4. The role of global commodity prices

A stickiness or reversal in the declining trend in the last one week could generate additional headwinds on the domestic inflation numbers.(Hindustan Times)

“A closer look revealed a faster rise in the (May) CPI inflation momentum compared to WPI inflation, likely led by more pass-through of higher input costs, higher oil prices and logistical disruptions due to the lockdowns. As the lockdowns ease, these disruptions will likely abate, pushing CPI inflation back below 6% (by July/August). That is the likely story of 1HFY22”, said a research note by Pranjul Bhandari and Aayushi Chaudhary at HSBC Capital Markets and Research. However, the note warned that upside risks to inflation could re-emerge in the second half of the fiscal year, likely driven by two factors: corporates likely feeling more confident about passing on higher prices to consumers as vaccination reached critical mass and demand side pressures fuelling service inflation.