Winning Bizness Desk
Mumbai.India’s retail inflation fell sharply to 0.25 percent in October, marking the lowest level in nearly 14 years. The steep fall has been driven by a decline in food prices, which make up a large portion of the consumer inflation basket. This is the lowest reading recorded under the current Consumer Price Index (CPI) series, which is based on the 2012 base year. In comparison, retail inflation stood at 1.44 percent in September, reflecting a consistent moderation in price rise over recent months.
CPI Series and Its Importance in Measuring Inflation
The Consumer Price Index, or CPI, is the government’s key tool to measure inflation. It reflects how the prices of goods and services, especially essential items like milk, vegetables, fuel, and groceries, change over time. The CPI compares current prices with those in a base year, using that base as a reference point to calculate percentage change. The lower the percentage, the slower the price rise, and vice versa.
The current CPI series in India uses 2012 as the base year, meaning prices from that year are treated as 100 for comparison. Earlier CPI series used base years like 2010 and 1993-94, but these are updated periodically to ensure data accuracy and reflect present-day consumption patterns. Each update ensures that inflation trends represent the changing lifestyle and spending habits of Indian households.
Sharp Fall in Food Prices Brings Relief
Food prices played a major role in bringing inflation down in October. Food items account for almost half of the overall inflation basket. Month-on-month data shows that food inflation dropped from minus 2.28 percent in September to minus 5.02 percent in October. This indicates that the prices of essential items like cereals, pulses, vegetables, and edible oils have fallen significantly.
Rural inflation also saw a major shift, turning negative at minus 0.25 percent in October compared to 1.07 percent in September. Similarly, urban inflation declined from 1.83 percent to 0.88 percent in the same period. This suggests that price relief has been widespread, benefiting both rural and urban households.
Understanding the Concept of Base Year
A base year serves as the benchmark for comparing price changes. It represents a normal, balanced year that is free from extraordinary events such as drought, pandemic, or extreme inflation. In simple terms, the base year is assigned a value of 100, and all subsequent years are compared to it. For example, if tomatoes cost Rs 50 per kg in 2020 (base year) and Rs 80 in 2025, inflation would be calculated as (80 - 50) / 50 × 100 = 60 percent. This same method applies to hundreds of items across the economy to derive the CPI.
How Inflation Moves Up or Down
Inflation is primarily influenced by the balance between demand and supply. When people have more disposable income, they tend to buy more goods, pushing up demand. If supply fails to keep pace, prices rise, causing inflation. Conversely, when demand weakens or supply increases, prices fall, bringing inflation down. The October data shows that improved food supply and stable demand have helped ease price pressures.
With October’s inflation hitting a record low, experts believe this may give policymakers more flexibility in handling fiscal measures and support purchasing power, though they remain watchful of any potential rise in global commodity prices or domestic supply shocks in the coming months.
Summary Pointers:
1. Retail inflation dropped to 0.25% in October, the lowest in 14 years.
2. Food prices fell sharply, easing overall price pressure.
3. The current CPI series is based on 2012 as the base year.
4. Rural inflation turned negative, while urban inflation also eased.
5. Food inflation declined from minus 2.28% to minus 5.02%.
6. The base year helps compare prices over time to measure inflation.
7. Inflation depends on demand-supply balance and overall market trends.
