Election combined with a heatwave may keep retail inflation, based on Consumer Price Index, at a high level in the coming months.

Based on 11 months (April-February) figures for fiscal year 2023-24, the average headline inflation has been 5.4 per cent, as against 6.8 per cent of fiscal year 2022-23 and 5.4 per cent of fiscal year 2022-21. The inflation number for March is to be out on April 12 and it is expected to exceed 5 per cent.

businessline talked to economists to make sense of the inflation number during coming months on account of the election and heatwave. While the election is likely to impact the demand side, the heatwave coupled with the prevailing geopolitical situation is expected to put pressure on supply factors.

This year, the election is spread over 44 days, the longest in independent India. Also, for the first time, candidates will have a higher expenditure limit between ₹75 lakh and ₹95 lakh (as against ₹54 lakh to ₹70 lakh earlier). Four States will have Assemble polls, where the limit for expenditure is ₹28 lakh to ₹40 lakh. There will also be some additional expenditure by political parties beside expenditure by the government to conduct the poll.

D K Shrivastava, Chief Policy Advisor with EY, said: “Election expenses would also add to demand in the system, so I do not expect any tangible downward trend in CPI.” There has been mixed trend during the last two general elections. According to Devendra Kumar Pant, Chief Economist with India Ratings & Research (Ind-Ra), the average inflation during December 2013 and February 2014 was 8.7 per cent, which declined to 8.4 per cent during March-May 2014. However, the average inflation during December 2018 and February 2019 was 2.2 per cent, which increased to 3 per cent during March-May 2019.

“The expenditure incurred by the political parties during elections leads to a temporary increase in demand. Inflation is impacted by a number of factors and an increase in demand due to the election process is one of them,” Pant said.

On the supply side, the heatwave would be key. Shrivastava said the heatwave will have one direct implication for the agriculture sector, which has been languishing compared to other output sectors in the economy in the last several quarters. On the global side also, supply-side challenges continue to operate. “I expect there might be some pressure on inflation. Most of the supply-side factor would account for pressure on CPI inflation, though WPI inflation would remain low,” he said.

The food and beverages group has a weight of 54.18 in the overall CPI, which is why it bears more on headline inflation. At the same time, this group has seen a divergent trend on inflation.

Though Pant feels food prices are gradually declining. It is more due to the base effect. But from July 2024, while the base effect will exert a downward pressure on food prices, weather-related issues - heat and rainfall - can limit the downward trajectory of food prices. Further, the situation with respect to oil is different. The impact of rising oil prices on inflation would depend on the extent of pass-through to consumers and the time gap between increase in global prices and pump prices, he added.

Meanwhile, core inflation (excluding food and fuel from headline) is low and continues to be low.