A Statistical Quirk

The sharp fall in consumer prices by more than 2 percentage points, from 6.93% in November 2020 to 4.59% in December, has brought the consumer price index (CPI) once again within the mandated target levels after a long hiatus of eight months. And this is the lowest increase in the CPI in the last 16 months. The December inflation numbers are also in tune with the Reserve Bank of India (RBI) projections of inflation dipping to 6.8% in the third quarter of the financial year and further to 5.8% in the fourth.

And the sigh of relief from the monetary authorities is practically audible because the unchecked consumer price increases in the previous months have raised apprehensions that the government may opt for looser inflation targets, from the current 2%–6% range, to allow a greater focus on growth when it reviews inflation targets later in March this year. But with inflation now sharply veering back to below the targeted levels, there is enough reason for staying on course, as targeting a wider inflation band will have an impact on the central bank’s ability to anchor inflation expectations and curb top-line inflation.