 So, welcome to all of you in the next chapter in the economic survey. So, today we are going to discuss about the chapter number 5 which discusses about the state of Indian inflation. We have already discussed that the financial year 23 that is the last year 2022 to 2023 was a year when we have seen a tremendous increase in global inflation. And also in India the inflation was well above the tolerance limit and hence globally every central bank have tightened its monetary policy to counter inflation. Because you know inflation is a very big problem not for the rich people, not for the middle class, but inflation acts like a tax on the poor people. And because of inflation many of the basic commodities like onion, tomato, which is very important for someone gets out of his control, that is why to control inflation is very fundamental to ensure the macroeconomic stability. And you know that in 2016 the RBI, the body which is responsible to control inflation in India, RBI made a historic agreement with the government under which it was decided that now in India the inflation will be between 4 plus minus 2 percent that is within 2 percent to 6 percent that is the consumer price inflation. And since then in India the RBI Monetary Policy Committee which is responsible to control inflation has done a credible job and that is why the inflation was well below 6 percent from 2017 to 2019. But because of the continuous disruptions in the economic activity caused by the pandemic, then because of the monetary titling conflict in Europe, the inflation has been a very big problem. We have already discussed that during the pandemic growth was a very important factor because everywhere there was an economic slowdown, not only slowdown economies contracted and hence globally every country, both the state as well as the RBI or the central banks put a lot of money to revive the growth, but eventually it led to rise in inflation. And hence in the last year the primary target of every country and every central bank is how to control inflation. So in this chapter basically we are going to discuss about this thing. What are the different types of inflation? Why inflation crossed that tolerance limit? How inflation was then controlled? What is the current status of inflation in India? So all these aspects we are going to discuss, this chapter is basically important for your preliminary examination. You have to get a broad or a brief idea about what are the different types of inflation and other things like that. So I hope you are liking this chapter, the purpose of these series is you to ensure that your basic concepts regarding economics are clear. It is not only to complete survey in one hour or two hour, that is why the basic logic behind going with this long lectures is that it should not only to complete survey, rather it is all about preparing you for that exam because in exam where you will look the questions are not very easy especially in UPSC, the questions are very analytical and hence for that to answer those questions you need your basic concepts to be very crystal clear and hence that is the logic why we have Chanakya IS has decided to go with this detailed analysis of the economic survey. So let us start with the chapter number 5. So rising price are always a cause of concern for policy makers as they heard the common man the most that is the poor people, the people who are around below poverty line or just near to that. The worst impact of inflation is faced by those people. In 2020, the year of pandemic supply side disruptions aggravated the cost push inflation in the country. So there are two types of inflation or the cause of inflation. So there are broadly two causes of inflation. One is the cost push and one is the demand led inflation. So in a very basic manner if you have to understand what are the different cause of inflation. So for example, someone is going to produce the spend but for the spend the raw material I need is coming from a different country and suppose there is a war going in that country or a lockdown because of pandemic going in that country. So the supply chain gets disrupted and I am not able to procure that raw material or even if I am able to procure that raw material the cost which I have to pay is greater than what I was paying. So this this will lead to what this will lead to rise in the cost of production of this spend. So this is known as cost push inflation. So this is basically because of the supply chain disruptions. This is basically because of supply chain disruptions and the second one is that demand led inflation. For example if the spend was initially being demanded by 100 people but now the spend has been accepted by people the spend quality is very good and now more people are demanding this spend and the production is safe. So for example I am producing only 100 pen and the people demanding are 1000. Next year I am still producing 100 pens but now the demand has increased from 1000 to 1500. So in that case again the price of this spend will rise. So this is basically when the consumers demand consumers demand more but the production is but the production is constant or increases at a slower rate vis-a-vis the increase in demand. So cost push inflation and demand full inflation. So in the year 2020 what happened it was the year of pandemic the supply chain was completely disrupted because of lockdowns and hence that year we have witnessed the cost push inflation. We have witnessed the cost push inflation because of lockdowns, factories were shut, mining was shut, semiconductor shortage. So because of the supply chain disruptions it was very difficult to procure and hence it led to the cost push inflation. Then so to counter this thing or to counter the slowdown in the pandemic to counter the recession or to counter the slowdown we have discussed that both the government as well as the RBI not only in India but in every country has followed an expansionary fiscal policy and a counter-cyclical monetary policy and because of this more and more money was put into the hands of the public. So what will happen now now more and more people will be demanding because they have easy money, they have cheap money so because of this the cost push inflation which was during the pandemic further increased because now there was also a demand pull inflation. There was also a demand-based inflation because now already there is a supply chain disruptions now the pandemic has ended or the lockdowns have been eased now the production activity is improving but now people have huge money with them or the money which they were having has been there because they did not demanded those goods during the time of pandemic but now when the lockdown has eased now those people are demanding for example you wanted to buy a phone but you did not bought that phone during the time of lockdown but once a lockdown has been eased now you are demanding that phone so this is known as spend-tap demands. So because of the spend-tap demand from cost push inflation which was already there now another type of inflation that is demand-led inflation started to come into the picture so this led to further inflationary pressure and all these things were happening from cost push to demand-led another shock came to the global economy is that the conflict in Russia and Ukraine again the supply chains got disrupted the energy prices got shot up the fertilizers prices got shot up so again the inflation came under a huge pressure so cost push to demand-led again to Russia Ukraine bought so in the last chapter we have discussed that how this whole economic crisis has happened for the first time there is no breathing space the events are happening without any interval one after the another right so it led to the worldwide inflation fueled by the surging prices of crude oil and other commodities a recovering world economy a recovering world economy means world economy was about to recover after the pandemic but what happened now the world economy which was about to recover is now facing another big crisis that is a unprecedented rate of inflation in many in many countries we have witnessed double digit of inflation so the world economy you know that baby was about to walk you taught the baby how to walk you invested a huge energy in teaching that baby now the baby was about to walk that another crisis has hit that baby right so the world economy was about to recover after the whole mess because of pandemic and other things now the world economy was recovering but it came under attack by the unprecedented rate of inflation and this led to what this led to monetary typing this led to monetary typing so the whole 2022 to 2023 we have seen every central bank have raised the policy rates in India the report rates has been hyped and because of that we have discussed the benefit of increasing the report rate is that you can control the inflation but the downside of that is you umpire the growth right so this prompted the central banks to tighten the monetary policy to control the inflation to control the inflation but this led to the risk of start flation this led to the risk of start flation start flation come up you have a stagnant growth but a high inflation you have a stagnant growth you have a stagnant growth but high inflation this is opposite to the general scenario because what happens in the general scenario in general scenario generally higher growth leads to more inflation because higher growth means more employment means more income right means more household disposable income right because if there is growth in a country then there will be more employment people will have more money people will have more money people will demand more money then your inflation will increase so generally higher growth leads to higher inflation but now in this scenario the growth which was about to recover about to recover it has not recovered it was about to recover in now it has been hit by an unprecedented rate of inflation so growth inflation that is not because of growth ideally growth leads to inflation because but here the inflation is not because of growth because inflation is because of the cost push inflation the supply chain disruptions high energy price high commodity prices this is our inflation is very high the growth is just recovering but now the RBI has started or the central banks have started to tighten its monetary policy so what will happen the inflation is already high it might come less to what it was that the growth will hamper so to increase growth you will have to reduce the policy rate but what you have done here is because your inflation has increased a lot and I have already told that central banks primary target the RBI star primary target is to control inflation so that's why monetary policy committee's first priority was inflation so as soon as inflation controls it will report it hike karega to upper growth affect karega so that is why this pose a risk to start inflation okay so growth was already down but inflation shot up some because of demand pull but mostly because of the cost push initially because of supply chain disruptions and then because of the Russia Ukraine war and because of all these things the inflation high growth low RBI started to tighten its monetary policy central bank started to increase the policy rate to control the inflation but the downside of that will be reduction in the growth so stagnant growth but a higher inflation and that's a very problematic scenario because the central bank that crap kare to kare kya inflation go control karni karega policy rate ko hike karega but jaisi policy rate hike karega what will happen the growth of impact karega so it's only the world was facing the risk of stagnation now India ki baat kare what happened in India so India's inflation rate has been well behaved as compared to other countries jo India ka inflation head wo utna zyada nahi kharap hua tha ticket ticket so India's inflation rate has been well behaved lying timely below the RBI target so 20 70 to 2019 ke beach mein the RBI's monetary policy ka meeting a jo target hai to control inflation within 2 to 6 percent this was there so from 20 70 to 2019 the inflation was well between this stress between this tolerance limit in 2020 the supply side disruptions push the inflation beyond the RBI's tolerance limit of 6 percent ticket so supply side disruptions will lead to cost push inflation and this led to the increase in inflation beyond 6 percent but things were still under the control but things were still under the control unlike the other countries why because in India the fiscal and monetary policy measures which were taken during the pandemic fiscal policy taken by the government and the monetary measures taken by the RBI were quite efficient as compared to what was there in the west so see what happened in the west so India and west India and west so India may work in let us analyze in 2020 when the pandemic came so when the pandemic came the growth contracted similarly here the growth contracted so what do we what we will do to increase the growth we'll try to have a expansionary fiscal policy and expansionary monetary policy the same thing was done over here expansionary fiscal policy and expansionary monetary policy what is the objective of doing this to revive demand to revive demand that is to revive the growth similarly here objective was to revive the demand because we have seen in India 60 percent of our GDP comes from private personal final consumption expenditure 60 percent of our GDP comes from the demand which is made by the consumers so to revive that thing both the government as well as the RBI expanded its fiscal policy and monetary policy but what is the difference between India and west that in India this fiscal policy and monetary policy was done in a calibrated manner calibrated manner that means for example you have expanded a little bit of fiscal policy or monetary policy here people have more money people will demand more but what you did is you also did the supply chain reforms supply side reforms because suppose just understand this if you are going to increase fiscal policy monetary policy expand to have a more and more money will come to the public so public will demand more so when public will demand more you also have to produce more so that the inflation does not increase and that's why the government calibrated this fiscal push and monetary push so that more and more money comes with the public in a gradual manner so that we can also ensure the supply side reforms so here pick which help the area fiscal policy or monetary policy through here pick which help the area fiscal policy or monetary policy through so this is not as calibrated step by step or but west make everything was upfront upfront fiscal stimuli was given upfront fiscal stimuli come up just for example i have to spend 1000 rupees during the pandemic to ensure the revival of growth now i have two options one i can upfront spend 1000 rupees this happened in west but in india it was in a calibrated manner so i'm spending 200 now 300 now again 200 now because i don't want to put money with the public at one go because if you put the money at one go the people will demand tremendously right and that will lead to inflation but in india we did it in a calibrated manner so that we can also reform the production so that the inflation comes under the control but here every countries in the west provided upfront fiscal stimuli all the money it's spending in one go and because of that it did not did the production side reform so but the same problem was not seen in india so the service says that because in india the central bank and the government has done a very credible job it has ensured a calibrated release of fiscal push and also a very gradual reduction in the monetary policy rates so that government can also improve the production side reforms this is why the service says that in this whole pandemic india has performed much better as what has been seen in the west right so this is what the survey is trying to say in 2020 supply side disruptions pushed inflation okay but inflation did not went beyond reach as in the west due to commendable inflation management in india by adopting appropriate fiscal and monetary measures during the pandemic the measures were prudent and well calibrated unlike the west where the upfront stimulus was pumped upfront stimulus ka matlab the whole fiscal push was given into the public or was put into the economy at one go right so that is why this thing was during the pandemic our inflation barhani but since january 2022 here inflation 6 percent 5.8 percent but it was well under the control but since january 2022 india's inflation has been very beyond 6 percent limit problem start work over here inflation ka but now the inflation has reached to 5.7 percent in december 2022 that means it has come below the tolerance limit so that's why many people are saying that inflation has stabilized in india now right so let us analyze why since january 2022 inflation has been well beyond 6 percent limit what was the reasons right so now we'll come and talk about the first type of inflation that is the consumer price index that is the domestic retail inflation so broadly if you will see there are two type of inflations one is cpi and the other one is the wholesale price index wpi so cpi is released by nso that is under the ministry of statistics and program implementation m o spi and wpi is released by dpi it which is under the ministry of commerce and industry ticket and cpi is what the rbi targets rbi monetary policy committee target cpi combined cpi combined means cpi ruler plus cpi adhapan what is cpi cpi best basically measures the inflation at the consumer level and wpi that is a wholesaler price index it basically measures the price at the wholesaler level so for example if i am going to buy the spend so that is happening at the cpi so that that change in the price of the goods which find the consumer has to pay this is known as cpi but wholesaler for example if i'm a wholesaler i'm buying thousand pens and then finally i will sell it to the public so what is the weight of change in the price at the wholesaler level and generally wpi and cpi not the same because the prices at wholesaler level changes at a different rate as what is the change you find in the consumer price consumer level okay so there are two types of inflation broadly other there are other types of inflation also but here we will be discussing about the cpi combined and the wpi so cpi is released by the mospi nso national statistical office a seer kya hai of the the base year for below the three indexes is 2011 team 12 so below three indices come up cpi c cpi ruler cpi cpi ruler cpi urban or any go combined kya ke kya bantaya ruler or bandoro combined kya cpi combined so cpi ruler matlab rural level pe consumer ke level pe can fraction a cpi urban means urban mate what is the inflation at the consumer level and when you combine this you get the cpi combined so the base year is 2011 team 12 it is published monthly for all states as well as india weights of all the items in cpi cpi based on the nso household consumption expenditure survey see these are the different different weights food and beverages constitutes the maximum share 45 percent and then miscellaneous 28 percent in which transport and communication health education recreation and then housing lastly 10 percent right so kya se decide karengin ki food and beverages 45 percent there that is based on how much for example if i'm earning 100 rupees how much money i'm going to spend on a monthly basis on my food so for that you have to understand and that is why the survey was created conducted in 2011 team 12 under which every household was asked and because of that the different weights has been given depending upon how much we are spending on what what uh uh take care so is this has been decided by this thing okay then rba for its monetary policy purpose targets this by cpi combined could target kya jataya okay now let's come to the headline inflation headline inflation the headline inflation a ka doh tarika inflation hota one cpi ki baat kare cpi c ki so there are two type of inflation one is the headline and the other one is the core inflation so core inflation or headline inflation menta kya hota ki headline inflation is the general inflation which constitutes all the three baskets food and beverages miscellaneous housing but when you exclude the commodities which are very volatile in nature out of the headline inflation you get the core inflation so headline inflation minus commodities which are volatile in nature volatile in nature matlab us ka jo price so these are very volatile components and hence if you have to understand do the inflation kya ai boh structural issue hai ek tarika se the core jo inflation hai that basically measures the structural part hota kya ki food inflation ka lako bare sakta hai it's very volatile right so that does not give the real structural analysis of inflation and hence you remove those volatile components and when you have to understand in general the structural aspect of inflation you analyze the core inflation right so first of all the survey will discuss about the headline inflation what has been the trend and then the survey will come out to the cpi core inflation right so headline inflation kya agar baat karengi hai so f y 2022 meh the cpi c base detail inflation as compared to was lower because cpi bhanda cup started by january 2022 se uske pare it was under the control tk why we have seen appropriate fiscal and monetary policy management by india but at the 23 begin with the russia ukraine crisis that led to the high headline inflation rate tk since january 2023 the inflation has been well above the tolerance limit and why because of the higher food inflation because petrol ka toh sadha issue hua nahi india yorub ke liye hua but india ke li toh nahi hua because we are getting in fact cheap oil now say india did not had a much problem india did not have much problem because india was anyways getting the cheap oil so india ke liye energy prices nahi baata but yes fertilizers prices in fact got shot up tk so india the inflation was not primarily because of the conflict in europe yes there was some reason because many of the commodities which we used to get from russia and ukraine like from ukraine we get edible oils tk toh se kuch inflation baata but in general the inflation has been because of the higher food inflation second food inflation ka reason ka tha excessive heat in summer and uneven rainfall ye aageyabnog aageyabn dekhenge what has been driver so leave this point over here we will discuss it in the next topic right now tk so see this has been the headline inflation so see this is the headline inflation and now see this headline inflation january so january ke baata kao ye headline inflation aapka bahar raya bahar raya and ye aapka 6 percent limit hain this is the 6 percent tolerance bam tk so the headline inflation was increasing and it was above the entire till not december till december the headline inflation has been greater than 6 percent but after december now the inflation has come down to 5.8 percent tk okay now now what has been the drivers or what has led to the retail inflation the first is the supply disruptions caused by the lockdowns and pumping of liquidity in the economy so this again supplies and disruptions was happening during the time of pandemic and then the pumping of liquidity that means the government as well as a central bank both expanded the fiscal policy and monetary policy so that's why it led to huge money with the public so first reason ye hain supply side disruptions caused by the lockdown and pumping of liquidity in the economy matlab logo ke paas zyada paasa raya ek taraf aur yaha pe kya hain aapka production slow hain because production is getting hampered by supply disruptions and vaha pe aapke paas logo ke paas getting more and more money but the major reason why inflation was high last year that is from january 2022 was because of the food commodities this is the major major reason hijabium recent bidekta the inflation was high high high q tha it was primarily because of the rising food cost why let us see spike in the prices of tomato because of the crop damage and supply disruptions due to heavy rains international price of edible oils surged going to a shortfall because you know that ukrain se hum log edible oil mangata hain then milk prices also got shot up bhai because of the rising feed costs higher feed costs feed ka juchara khaate hain gaye toh boh bhar kya tha take care so food commodity bhoot bada reason tha aapka inflation burden and you know that amni dekha inflation me food and beverages constitute 45 percent share matlab lag bak 50 percent share food and beverages me aapka yahi se aata hain so any slight change has a huge effect on the overall increase in the cpi it se liye food commodities ke bahane se aapka problem aaya us ke baat conflict in europe ki bhaja se global commodity prices again increase it se ko kete imported inflation matlab this inflation ka juh reason hain it is not because of india but it is because of ever thought vahasai inflation india me hain right but now has been the moderation of food inflation leading to retail inflation coming under the tolerance but the food inflation which was the major reason or which was the main reason which was the main reason why retail inflation that is cpi has been has been greater than 6 percent since january 2022 take care so this we are talking about cpi abhi amni wpi peyenge yeh amni baat kare consumer price index ka aur ish me 50 percent share kiska hain food and beverages ka so kar halka sabhi change aega aapka food commodities ke dam mein overall cpi aapka bada jayega aur yahi hua dekha but now yeh juh problems the jiske bhaja se food commodities has increased now it has been controlled ab ish ko aapko control kar liya gaya hain and hence the cpi has now moderated cpi has come down by other 6 percent in december 5.7 piya chuka because of the moderation in the food inflation toh ab dekho vegetable kadam see it was increasing but now it has decreased similarly the price right for potato ka dekho see this onion onion is really constant but see tomato now it has again reduced see this is the price of edible oil it is again started to decline take care so this has been a very good point juh food based inflation tha go aapka control aagaya hain and that is a good thing take care aur yeh food inflation bada kyun we have seen why because of all these reasons plus aapke pas pata ek heat waves bhi bohot zyada atna last year and uneven rainfall so aapko pata climate change ki bhaja se agri culture kuch boh bada impact dekhne ko mil raha hai aap abhi imagine kare hai just now in february aap dekli temperature kitna zyada increase kar raha hai aur iski bhaja se agail juh rabi ke crops hai jis ka harvesting ka sama hai abha chuka hai usme bohot problems raha hai so ho sakta hai ki jo wheat ka production ho iss saal bhi ho kam ho because temperature joh hai boh iss sama hai itka nahi ho na chahiye tha jitna bhi hai and this is the effect of climate change aur climate change ka ek bohot bada impact agri culture me dekhne ko mil raha hai aur melega in future right so that's why we have to shift towards a climate smart agriculture so food ki bhaja se aapka ye poora inflation joh hai because europe me conflict ki bhaja se hamaare energy prices pe kuch zyada effect nahi bada to europe me jo inflation hai boh zyada issi ki bhaja se energy price se but india ko kuch zyada pharhat nahi bada yes some commodities became expensive kuch metals metals joh amnok bahan se mangata aur edible oils joh amnok mangata hai uska impact dekhne ko hame us war ki bhaja se mil aata so headline inflation has come under the control but if you will see core inflation so see this like now yaha pe dekhya aap this is my blue wala so this is my headline inflation so headline inflation is under control and this is my core inflation this is my core inflation but ab dekhne core inflation abhi bhi zyada hai kya headline inflation se abhi bhi zyada hai core inflation because headline inflation se amnok kya hatayenge ek core inflation aayaega if we remove the food and fuel headline me se agar amnok food and fuel kuch hatayenge to kya hame core inflation mil aayega so kya food ka dam has stabilized we have seen just now the price of vegetables and other things have come down aur fuel ka to theki hai because we are getting cheap oil so core inflation abhi bhi hi hai matlab food and fuel ki bhaja se jo pehle inflation bar raha aap uski bhaja se nahi ban raha hai ab inflation me headline inflation is come under control but the core inflation is again close to six percent matlab abhi bhi core inflation matlab if you remove these things so this you have to understand ki headline inflation has come under the control lekin core inflation abhi bhi that means minus food and fuel that includes other things bo abhi bhi kaafi zyada sticky hessi ko kyaate sticky aap luk news me patate hoge sticky to sticky ka matlab agar inflation ko control karne mein kaafi time lag raha hai bap sticky ho chuka hai aap ho usko move karna bap muskil ho raha hai it has become rigid right and that is why this has happened so core inflation aapka increase core inflation has been little higher and core inflation higher kyu hai because aapka food and fuel hata do to aapka health aata hai education aata hai to education ka cost bhi abhi aap dekhye ho barhaha hai housing rent jo pandemic ke same aapka house rent tabo kaafi kam tha but now the housing ke demand has increased so all those things is leading to a sticky core inflation but headline then the survey also gives about the ruler and urban inflation differential that means the consumer price index jo hai bo ruler level mein alag hota hai aur urban area mein alag hota hai why because ruler area ke jo demand hai bo alag hota hai urban area ke jo logo ko demand hai bo alag hota hai let me give you one difference for example if a person in urban area is earning 1000 rupees right if a person in urban area is earning 1000 rupees and in a person in rural area is again earning 1000 rupees let us imagine so a person in urban area or suppose this person is earning 500 because rural area mein kam kamaega okay let us imagine 500 is earning an urban area out of that 1000 rupees a person is spending 100 rupees on food so that will be equal to 10 percent that means 10 percent of his income he spends on food okay to khayega to ek aadmi bahi kana chahe boh gaw mein rahe chahe boh sheher mein rahe right bahi khayega boh if that person does not eat anything else but generally to food habits se logo ka that person will eat the same thing in urban area also and the same thing in rural area also so now the person again in rural area will spend 100 rupees on food zyada difference to ho ka nahi kaya he might eat 5 rotis and that person might eat 10 rotis but usse ku zyada pharek nahi par the in general that person will again spend 100 rupees or 80 rupees you can say or 120 rupees a average it will take 100 rupees because food cost is leg ab iska kitna hua this person spending how much 20 percent so in urban areas a person spends only 10 percent of his his or her income on food but in rural area a person spends 20 percent of his income on food that is why if the prices of food increases who will suffer the more the rural people because in ka income kum hain aur inki income messes jitna zyada yeh lo khaane pe kharch karte hain wo zyada hota hain as compared to urban area to urban area ka income zyada hain usse khaane ka kharch kaga percentage nika logit ko kum ho ka and this is what has happened humne dekhah ki food inflation was a very big problem during f by 23 isi kivade se last year poor inflation bada hua tha so because of that the rural level me cpi hain cpi r was greater than cpi urban because if the prices of food increases then the person who suffers the most is the rural population and that's what happened during this period right so that's what the service says over here that the rural inflation has remained above its counterpart the primary the rural inflation has remained above its urban counterpart throughout the current fiscal year so we can see this is the graph between urban and rural so you can see this dot dot one is the rural inflation so rural inflation is higher than the urban inflation why because the food inflation has been higher so you can see this rural see okay so this is the higher food inflation in rural areas right so that is why the rural inflation is higher as compared to the urban in inflation last year now the other type of inflation is wpi so other type of inflation is wpi so wpi is published by the office of economic advisor dpi comes under the ministry of commerce industry again the base here is same but now see the composition basket is a different one over here as compared to the cpi so here consumption basket look at the basket so primary articles weight 22.6 percent fuel and power 13.15 percent and manufactured products 65 percent so see manufacturing has the highest share the food and beverages are 45 percent but wpi which component is the highest share it is the manufactured products so if there is a problem in manufacturing then which cpi is more effective which inflation is more affected wpi and if the food is affected food prices are affected then which inflation is the most affected it is the cpi so this is you have to understand that is why food inflation wpi will not increase as much as cpi will increase right so now status of wpi so wpi base inflation remained low during the covid 19 period and it started to gain momentum in the post pandemic period as economic activity is resumed right because wpi was almost negative because manufacturing is 65 percent but no person is demanding anything so manufacturing demand has no inflation so there was no inflation wpi level cpi was stable but wpi because manufacturing is the major component and no person was demanding anything that is why the manufacturing base wpi was low but when the pandemic ended when the lockdowns were eased now the people were demanding the economic activities resumed so now the wpi started to increase right so during the covid it was low or it was even negative but now when the people are demanding manufacturing activity started people are demanding pent up demand so the wpi has also started to increase and also because of the base effect base effect means that wpi was very low during the pandemic it was over here so a small change also a positive it starts from a very low base so because the wpi during the pandemic was negative that means it had a very low base so the cumulative figure will be higher take care so the russia-ukrain conflict now further increase the burden as it worsens the global supply chains along with the free movement of essential commodities so now when the wpi was recovering after the pandemic and it was in the double digits why because of the base effect now it further increased because of the russia-ukrain war again the supply chain disruptions and the price of global commodities shot up so as a result the wholesale inflation rate climbed to about 13 percent in f by 2022 okay 13 percent is basically because of pent up demand he can second base effect don't know prices of items like petroleum product basic metals chemical and chemical products and animal oils with maximum exposure to international pricing translated into the rise in the domestic wpi inflation because wpi manufacturing 65 percent on manufacturing supply chains and if any one country is disrupted then the whole supply chain gets affected and because of that your imported inflation the basket and on that basket you have to then again then you have to then compare the wpi right so drivers of wpi so drivers of cpi get the food inflation mostly in f by 2022 and then in f by 23 due to food inflation in f by 23 and imported inflation fertilizer and fuel price okay so f by 23 but last year supply side disruption pent up demand plus base effect plus base effect so see this is the wpi right so this is the wpi the headline so see this is the wpi okay so wpi was in the double digits take your 10 12 percent so this was why because of the pent up demand right supply side disruptions and mostly the base effect base effect because it was starting from a negative base cpi was stable because people were eating before the pandemic during the pandemic also so cpi was not stable because people are again demanding the food people were demanding food so cpi was not a negative zone cpi was stable but wpi because the manufacturing activity was completely shut people were not demanding any manufacturing goods and that was wpi went to that zero level and hence that wpi was starting from a very low base effect and that's why wpi was in the double digits okay but now a pent up demand ukrain bore we are so sicky because the supply side disruptions were now that is also you know reduced so that's why the wpi inflation now has declined to 5 percent in december 2022 so now you can see cpi how much has happened in december 5.7 percent and wpi how much has happened 5 percent so now both the inflations are under the control right both the inflations are under the control right now convergences of wpi and cpi inflation you may copy you know a thing which the survey has discussed is about the convergence of cpi and wpi inflation now understand cpi inflation and wpi inflation are two different things and hence the rate of change in these two inflations is different why first the cpi inflation has 50 percent is depends or sorry cpi inflation depends mostly on the change in the price of food and bee villages because it constitutes 50 percent and the wpi mostly depends upon the manufacturing products because it constitutes 65 percent so hence because of these things the rate in change in cpi and wpi does not happen at the same manner second due to the supply side disruptions which happened during the pandemic and during the russia ukrain war the supply chains got disrupted and hence the global commodity prices got shot up and because of that the manufacturing will get impacted so whenever the international disruptions take place with the supply side disruptions takes place that it immediately affects the wpi right because for example if I am producing this pen I have a manufacturing plant right but now I am not able to get the raw materials because of the supply side disruptions so immediately my cost of production of this pen will be escalated but generally most of the factories have already some stock of pen which they have already produced right so for those products the price remains constant so there is no change at the level of cpi because I am sold in my inventories or I am not passing that cost now because I do not want to lose my consumers hence whenever there is a change happening at the international level the rise in the global commodity prices it affects the wpi instantly but it comes with a lag at the level of consumer so the wpi increases your throne but cpi increases your time lag a little because any factory does not want to you know quickly increase the price of its product because it does not because it does not want to lose its consumer and hence any price increase because of supply side disruptions which leads to escalation in the cost of the production at the level of factory right so the producer does not pass that escalated cost in one go to the consumer rather it passes that increase increased cost in a calibrated manner hence wpi so yeah over here while the pass through of international prices to the whole seller price is relatively quick 12th wpi but it impacts the retail prices with a lag second difference in the composition and bates so because of all these things the rate of change in cpi and the wpi is not the same so that's what the survey says this is the reason why the two indexes diverge but now you can see this is the rate of divergence so this is the wpi and this is the cpi so you can see from April from March basically from March 2021 till November or December the cpi and wpi were at a different level but now by December we have seen that the wpi has come down to the 5 percent and cpi has come down to the cpi 5.7% so now they both have converged so now cpi inflation or wpi convergence is happening which was increasing from a different trajectory because the influence of both of them depends on that's why they both basically vary but now because the whole economic activity has stabilized disruption is over pent up demand is over base effect is over now the economy is in the post pandemic world so because of this now all the things have got settled and that's why the convergence is between cpi and wpi has now come so you can see this is what you have to understand the wpi and cpi c started diverging in March 2021 March 2021 see a diverge on a start because cpi what was before March from March between June 20 it was the covid lockdowns now the lockdowns were relaxed now the lockdowns were relaxed in 2021 in 2021 lockdowns were eased out so now what happened your wpi will increase because now the people will demand manufacturing goods so say kya hua wpi started to increase but because of the base effect because wpi was during this time it was in zero wpi was effectively zero or in negative also at some times so ski was a wpi started to grow at double digit but cpi to inflation case some cpi inflation was same before the pandemic and also didn't the pandemic was because food and commodities agriculture sector was very resilient and people were eating food during the time of pandemic they were not doing anything else than eating food so cpi was stable so cpi c was stable and wpi touched the double digits and then the veg and then the gap started to happen and this gap reached its peak at 10 10 percent the difference between cpi and wpi it reached at its peak in November 2021 and then it started to get narrowed down so here if you will see see now here see now it has reached its peak in November so November see the gap is has peaked now take care there after the gap so it had reaching its peak at November 2021 now it has started to narrow down sorry this one is this now it has started to narrow down abhi a narrow down ho raya aap dekho apka yeh dekho wpi is also decreasing and cpi inke beech ma bhi yeh jo gap hai it is coming down the gap between wpi and cpi is coming down right and it happened till april aur april ke baad dekho yaha pe now the again the gap is increasing why because yaha pe war ho chukhaya apka conflict in europe has started aur conflict in europe ki wpi increase karega bahot tez rate se amne dekhaata international level pe supply side disruption se sapsata pehle impact paan hota wpi because wpi is 65% manufacturing goods so manufacturing goods depends upon the supply side and any disruption in the supply side first of all impacts the wpi rather than affecting the cpi because cpi mostly depends upon the food and beverages to usm utta zada impact ti hua but wpi dekho kaafi tez rate se bana after the conflict in europe and hence the gap which was coming down now again the gap started to increase now again the gap started to increase but when the war war ki vajasita supply side disruptions tha it got started to stabilize the impact on the supply side disruptions started to come or started to stabilize and hence the gap between wpi and cpi has started to come down and now finally it has converged now it has finally converged so that's what the survey basically tells about so you have to understand that if in prilence the question comes that what is the difference between wpi and cpi why wpi and cpi grows at a different rate so you have to understand what are the factors which influence these two factors and now finally it has come to the convergence okay then again the survey has talked about the housing price also so you have to just not very important but one thing which the survey has given is this the national housing bank housing price ka matlab housing jo house ke jo cost hai rent house rent and jo house ko jo sell hota hai and buy the people who buys to us pe kya aap ka changes aaya hai right the prices of the house right so usko assess kaisa kaisa hai dekha tha ki cpi and wpi released by government different agencies similarly to track the housing price national housing bank which is the fx regulatory body which is the fx regulatory body which is the fx regulatory body which controls which regulates the housing finance companies so india all the housing finance companies are regulated by the national housing bank which comes under the ministry of finance ministry of finance so what are the housing finance companies housing finance companies are basically those companies or those NBFCs which are responsible to which are responsible to promote housing sector in India, which are responsible to promote housing sector in India. So those housing finance companies that promote the entire housing sector that is regulated by the National Housing Bank and they have two price indices, two housing price indices, one is the HPI assessment price and the second one is the HPI market price quarterly. So what is the assessment price basically, in the assessment price, all the lending institutions like banks, banks give you loans for the house, you collect details from the banks that what value do you have on the loan, you ask the banks that whatever you have given for the housing loan, what was the value of the house, by that you are able to track what value is increasing or decreasing and the second HPI market price basically all the developers, for example if I am a developer, I have developed 100 flats and they are not sold yet. So I will go and ask the developers how much you will sell this house, so you calculate and analyze the changes in the price, so this is based on the market price for unsold inventories collected from the developers of the real estate developers you go and calculate it in detail. So just you have to understand or you have basic information that the National Housing Bank is an organization that takes out some housing price indices and its base year is FY18. A composite index is calculated for 50 cities, so 50 cities value of real estate not every cities across India, you can see that this now the value of the indices has started to grow. But now when the economy has recovered and people are demanding more and more house, so that has led to the increase in both the indices. Now the last thing the survey here talks about medical prices and here the survey has discussed about the pharmaceutical prices. So pharmaceutical prices are not important for my prelims part, but some factual information which the survey has given is that the first survey has talked about the national list of essential medicines. So what is the national list of essential medicines, it is a list which is prepared by the Ministry of Health and Family Welfare and it is basically told that which are essential medicines, essential medicines which are very important medicines which if anything is affected then the health sector will have a lot of impact, that is why essential medicines which is very very important, that list is prepared by the Ministry of Health and Family Welfare. So the medicines listed in the NLEM are sold value of price ceiling fixed by NPP, which means the Ministry of Health and Family Welfare prepares a list, which are very essential medicines, that means essential medicines, those medicines which is required by the public on a very general basis, that is why you need to control the price because if this essential medicines price increases, so it will become out of reach for the poor people and hence you need to control the price of essential medicines. That is why there is a price cap on it, on this price cap, you cannot sell these essential medicines, on this price you cannot sell it to the public and who decides the price cap is decided by National Pharmaceutical Pricing Authority, NPPA, National Pharmaceutical Pricing Authority decides what has to be that price cap and it comes under the department of pharmaceuticals, which comes under the Ministry of Chemical and Fertilizers. So you have to understand that essential medicines list is prepared by Ministry of Health and Family Welfare, but the pricing cap is decided by Ministry of Chemical and Fertilizers, which is responsible for this thing. So this is an independent regulator for pricing of drugs, National Pharmaceutical Pricing Authority. So the pricing cap tells you that you cannot sell this price beyond up and what it does for this is it releases a drug price control order, that means where the price cap mentioned will be, this is essential medicines mentioned, but NPPA will give you a price cap that is the maximum price of this drug, so that has been released under this order in 2013. So drug price control order 2013, this order has been published by Department of Pharmaceuticals, which comes under the Ministry of Chemical and Fertilizers, it is independent regulatory this. It is the basis for an order released under the Essential Commodities Act 1955. So NPPA is responsible for implementation of the drug price control order 2013. So three things here are important, first, National list of essential medicines, which is released, the price cap that is decided by the Department of Pharmaceuticals, there is a specialized independent regulatory body NPPA and this order is released, this order is released, the price cap mentioned and the order is published in this act, this act is there. So this is the basic framework about how the prices are controlled related to pharmaceutical sector in India and then lastly also you know that this has been the flagship scheme launched by the government, it is the Pradhan Mantri Bhartiya Jan Aushadhi Pariyojna, in which you can make Jan Aushadhi Canneders and in which you are made Jan Aushadhi Canneders you are available to generic medicines. So generic medicines, these are medicines, if anyone comes to a drug, what is that first you have the intellectual property, the production is reserved for the company which has invented that medicine, right? The company which has invented it for a while, it is exclusive right to make that medicine. But once that time period ends, when that time period ends, then any company can make that. That's what we call a generic medicines. And the cost of that is very much cut. So for that, the Prime Minister has been launched this scheme. Finally, the survey concludes. And in this chapter, the survey says what will be the positive at the level of inflation? What will be the positive for inflation? 2023 will show less macroeconomic volatility than its preceding financial year. Both CPI and CNWP have fallen below 6%. That's a very good news for India. And then international crude oil prices have returned to its normal level. So there is not much increment in that. And then due to the anticipated slowdown in advanced economy, there is a high risk of recession in Europe and to some extent in America. Inflation risks coming from global commodity prices are likely to be lower. Because if there is a recession there, people will not be demanding anything over there. So due to that, the global commodity price will reduce. So our import will also be cheaper. So overall inflation, all these things are positive in the coming year. But what are the challenges with respect to inflation? First of all, the US economy has started to improve. There is a lot of recovery in the US economy. The government rate has also come down. Due to this, the demand for global crude oil can increase if the US economy bounces back very strongly. Similarly, the geopolitics associated with oil. If yesterday Russia-Ukraine escalates further, any other problem comes. Then there can be a lot of problems in inflation. And finally, you know that because of the food crisis, you will read in the news that there is a lot of problem in the harvest of wheat because of heat waves. And also because of climate change, there is a huge unevenness in terms of the monsoon. Because of that, the food prices can also be the cause of inflation. So these are the challenges with respect to inflation in the coming financial year. But overall the survey says that inflation had a problem in the past year from 2022. It started in January 2022. Now by the end of the year, December 2022, it has come down and in this year it will stabilize further if there is no some other external shocks. And if the agriculture sector also performs well, then our inflation will come under control. So in this way, the chapter has talked about in detail inflation. You have to know the CPI from the perspective of the prelims. You have to know the WPI. Why they diverge? Why they are converging now? And what influences CPI? What influences WPI? And then you have to talk about medicines. And those two indices which has been published by NHB. So for the prelims, some factual information is useful for you. And then you should also talk about the RBI Monetary Policy Committee. Why it has kept the inflation ban between 2-6%. Why not 2-8%. So all these information you should have known here. So by this, we have completed the chapter number 5. Again we will come and discuss the chapter number 6, 7, 8 and till chapter number 12 we are going to discuss. I hope you are liking this lecture. And if you have any problems, if you have any doubts, feel free to ask either in telegram or you can just post it in the comment box. And I hope you are liking this and continue watching this. If you like this video then please like the channel and subscribe to Chanak's IAS Academy. Have a great day. Thank you.