Economic Survey 2020 Volume 2 – Chapter 5 (Prices And Inflation) – Free PDF Download

INTRODUCTION

• Inflation has been witnessing moderation since 2014 backed by low food inflation.
• During the current financial year, however, food and beverages inflation has been trending differently.
• Food inflation has been on an upward trend mainly backed by rising vegetables, fruits and pulses prices.

GLOBAL STATUS OF INFLATION

• The global economy has been witnessing a steep decline in inflation over the past five decades (World Bank, 2019).
• Inflation has declined in almost all the countries around the world.
• Emerging market economies have also experienced a remarkable decline in inflation over the same period.

Inflation in selected groups of CPI-C Base 2012 (in per cent)

FOOD INFLATION

• Food inflation has been the major driver of inflation during the current financial year, 2019-20.
• Some commodities such as onion, tomato and pulses have shown high inflation since August 2019.
• Untimely rains have caused lower production as well as constricted the movement of onion and tomato to the markets.

COB-WEB PHENOMENON FOR PULSES

• Farmers base their sowing decisions on prices witnessed in the previous marketing period.
• Measures to safeguard farmers like procurement under Price Stabilisation Fund (PSF), Minimum Support Price (MSP) need to be made more effective.

DIVERGENCE BETWEEN RETAIL AND WHOLESALE PRICE

• Observed for essential agricultural commodities in four metropolitan cities of the country from 2014 to 2019.
• Divergence particularly high for vegetables like onion and tomato. This may be due to the presence of intermediaries and high transaction costs.

VOLATILITY OF PRICES

• Volatility of prices for most of the essential food commodities with the exception of some of the pulses has actually come down in the period 2014-19 as compared to the period 2009-14.
• Lower volatility might indicate the presence of better marketing channels, storage facilities and effective MSP system.

REGIONAL VARIATIONS

• CPI-C inflation has been highly variable across States ranging between (-)0.04 per cent to 8.1 per cent across States/UTs in financial year (FY) 2019- 20 (April-December).
• In most states, CPI-C inflation in rural areas is lower than the CPI-C inflation in urban areas
• Rural inflation has been more variable across states than urban inflation.

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