Spiralling prices pinched the pocket of consumer as edible oil, fuel and many other commodities turned dearer this year amid pandemic-induced disruptions but the inflationary pressure is anticipated to ease, though marginally, in the coming months.
As consumers, at retail as well as wholesale levels, are willy-nilly learning to live with the new normal of curbs to contain the spread of coronavirus infections, experts are of the view that elevated inflation is likely to stay longer.
After dealing with the devastating blows from the second COVID wave, especially during the April-June period, the economy is well on the revival path but the emergence of Omicron might unsettle the recovery trajectory in the short term.
Looking back, 2021 was a bad year for consumers as they grappled with high prices and many also saw decline in incomes, job as well as business losses.
Whether it was manufactured or processed commodities, transport and cooking fuel, vegetables, fruits, pulses and others, prices sailed northwards, mainly due to high cost of raw materials. However, the gradual economic revival is the silver lining.
High input costs of many manufactured raw materials were passed on to end users by the producers, pushing the wholesale price-based inflation to an all-time high in November while retail inflation too remained on a sticky wicket.
Cooking oil prices soared to Rs 180-200 a litre during the year.
Analysts and experts feel that high inflation on an absolute basis is here to stay.
However, the gradual pick-up in the economic growth and good crop prospects due to normal monsoon will help soothe the prices going forward.
Reserve Bank of India (RBI), which takes into account retail inflation as one of the key components to review the repo rate, has projected Consumer Price Index (CPI) based retail inflation to ease to around 5 per cent by the first half of the next calendar year.
From a benign level of little over 4 per cent in January 2021, retail inflation breached the 6 per cent mark twice in mid 2021, before declining towards sub-5 per cent in November.
There were some spurts in between though.
On the other hand, Wholesale Price Index (WPI) based inflation hit a record high of 14.23 per cent in November as against 2.29 per cent in 2020 due to hardening of prices of mineral oils, basic metals, crude petroleum and natural gas.
It was at 12.54 per cent in October. WPI inflation remained in double digits for eight consecutive months beginning April.
RBI Governor Shaktikanta Das had flagged inflationary concerns over high fuel taxes, suggesting the government to take action as it pinched the common citizen badly.
Edible oil prices remained high throughout the year because of a sharp rise in global rates.
The government reduced import duties of crude and refined edible oils multiple times to control rising prices, Suresh Nagpal, chairman of Central Organization for Oil Industry & Trade (COOIT), said.
"Due to high input cost for manufacturing, there will surely be a pass through to the end user.
"That includes the logistics cost. Hence, the consumers will have to pay more for most commodities.
"We expect that with normalisation of growth, commodity prices are likely to cool and this will be beneficial for India inflation.
"Global food prices are high but this may not have a direct impact on India as India has adequate buffer stock of grains," Indranil Pan, chief economist at Yes Bank, said.
According to Pan, the current inflation trends indicate some permanency.
Over time, one can expect the global supply chains to improve and this should bring comfort for inflation.
In India, it still appears to be a cost push inflation rather than a demand pull one, he noted.
"Core inflation is expected to remain sticky as producers in many sectors are passing on higher input costs to output prices.
"Healthy reservoir levels and brisk rabi sowing augurs well for food inflation for H1 CY2022, although base effects are unfavourable.
"Fuel inflation may ease, even as the absolute costs remain quite high across various products, eating into households' disposable incomes," Aditi Nayar, chief economist at ICRA, said.
Prices of petrol and diesel -- the two main transport fuels -- continued setting new records, hitting over Rs 100 to Rs 110 a litre in some places during the year as the government kept raising the excise duties.
The government's response, despite repeated calls to reduce taxes, was too late.
The duties on petrol and diesel were slashed in early November by Rs 5 litre and Rs 10 litre respectively, followed by reduction in Value Added Tax (VAT) by many states.
Madhavi Arora, lead economist at Emkay Global Financial Services, said, "We see FY22 inflation at 5.5 per cent (RBI: 5.3 per cent) with risk largely balanced.
"Even with food inflation averaging around reasonable levels, core inflation will average nearly 6.2 per cent, outdoing headline.
"We remain watchful of inflation push-and-pull factors."
"We, as an association also urged our processor members to cut prices to provide some relief to consumers.
"India is likely to harvest bumper production of oilseeds during this rabi season. Kharif production has also been good.
"We expect the domestic availability of edible oil will increase in coming months.
The global market also shows a declining trend. These positive developments should help in bringing the prices of essential cooking oils to a reasonable level in the new year," COOIT's Nagpal said.
RBI had raised concerns that the persistently high core inflation, excluding food and fuel, from mid-2020 owing to high input cost pressures may be transmitted to retail inflation with picking up of demand.
Core inflation reflects price change that does not go away and it is considered an indicator of underlying long term inflation.
Analysts expect retail inflation to be around 5-5.2 per cent next year with risks largely balanced.
RBI expects CPI inflation to be at 5.3 per cent for the current fiscal ending in March 2022 and then to ease further to 5 per cent during April-September 2022.
Recently, RBI Governor expressed hope that reduction in excise duty and VAT on petrol and diesel will bring about a durable reduction in inflation.
"Vegetable prices are expected to see a seasonal correction with winter arrivals in view of bright prospects for the rabi crop.
"Though crude oil prices have seen some correction in the recent period, a durable containment of price pressures would hinge on strong global supply responses to match the pick-up in demand as pandemic restrictions ease," Das said earlier this month while announcing the last monetary policy review of 2021.
Photograph: Rupak De Chowdhury/Reuters