Drawing from Shapiro (2020), we assess effects of COVID-19 on India's core inflation.
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Jan 15, 2021
India Core Inflation - Assessing COVID Sensitivities
Recall, amidst a sharp reduction in demand and disruptions on the supply side since the onset of the pandemic, core inflation (i.e., headline inflation excluding Food and Fuel inflation) has continued to remain elevated. We break-down core inflation into COVID sensitive and COVID insensitive components, both being mutually exclusive groups.Our findings indicate –
- Contribution of COVID sensitive category to core inflation has risen to nearly 47% in the post COVID phase vs. 21% in 2019.
- Several items within the COVID sensitive category appear to be MSME dominated in production, which could have faced stronger operational hurdles and/or forced out of business thereby reinforcing the supply side driven nature of core inflation upside