Post-pandemic inflation in India: impact of input costs and wages

Consumer prices in India are often influenced by supply-side forces, such as wages and input costs. Inflation-targeting central banks track such costs to gauge inflationary pressures. After remaining rangebound in the pre-pandemic period, global commodity prices and domestic input costs heightened in the post-pandemic period. In parallel, high inflation episodes were witnessed in India. This study investigates the impact of input costs and wages on CPI inflation in India using augmented-Phillips-Curve and VAR frameworks, and how this impact evolved over time. While empirical results suggest increased significance of input costs in driving post-pandemic inflation, they also indicate improved anchoring of inflation expectations.