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Spike in food prices pushes retail inflation to 16-month high

Consumer Food Price Index (CFPI) inflation rose to 7.89 per cent in October as against 5.11 per cent in September.

By: ENS Economic Bureau | New Delhi | Updated: November 14, 2019 4:06:28 am
CPI inflation rate in September 2019 stood at 3.99 per cent and 3.38 per cent in October last year.

Retail inflation, based on the Consumer Price Index (combined), or CPI, rose to a 16-month high of 4.62 per cent in October, driven by a spike in food inflation, especially vegetable prices, along with a low base effect, data released by the National Statistical Office on Wednesday showed.

At 4.62 per cent, the overall retail inflation rate is slightly higher than the Reserve Bank of India’s (RBI) inflation projection of 3.5-3.7 per cent for October-March 2019-20, but is within the medium term target of 4 per cent within a band of +/- 2 per cent. CPI inflation rate in September 2019 stood at 3.99 per cent and 3.38 per cent in October last year.

Consumer Food Price Index (CFPI) inflation rose to 7.89 per cent in October as against 5.11 per cent in September. Urban areas recorded higher food inflation than rural areas, with urban food inflation being recorded in double digits at 10.47 per cent in October from 8.76 per cent in September, while rural food inflation almost doubled to 6.42 per cent in October from 3.22 per cent. However, core inflation, which is non-food, non-fuel inflation, eased to the lowest level in the last 94 months (the present CPI series) to 3.47 per cent in October. It was 4.02 per cent in September 2019 and 6.19 per cent in October 2018.

Explained

Food inflation likely to be on rise till March

The surge in the headline inflation print was widely expected, given the spike in prices of vegetables, meat, fish and eggs, due to disruption in transportation caused by excessive rains. Food price inflation is likely to rise further at least till March 2020, mainly due to food price deflation till February 2019 and low inflation in March 2019. The CPI data also reflects a slump in core inflation, indicating sluggishness in demand. With rising inflation rate and a lower growth scenario, RBI will have to do a balancing act at its next meeting.

Inflation rate in the ‘food and beverages’ segment jumped to 6.93 per cent in October 2019 from 4.70 per cent in September. Within food items, vegetables inflation increased by 26.10 per cent, fruits by 4.08 per cent, milk and products by 3.10 per cent, pulses and products by 11.72 per cent, and cereals and products by 2.16 per cent. Inflation for the ‘fuel and light’ category stayed in the negative territory at (-)2.02 per cent in October as against provisional (-)2.18 per cent in September.

Economists said food price inflation is likely to rise further at least till March 2020, mainly due to food price deflation till February 2019 and low inflation in March 2019.

With rising inflation rate and a lower growth scenario, RBI will have to do a balancing act at its next MPC meeting, economists said, with some expecting a rate cut and some expecting a pause in the rate cut cycle.

“Although headline CPI inflation in October has breached the central point of RBI’s inflation targeting framework, the increase is due to seasonal items and strong base effect. With economic growth slowdown, India Ratings and Research believes growth concerns will dominate in RBI’s monetary policy review and RBI to continue with accommodative policy and expect further rate cut in the policy review of December 2019,” Devendra Kumar Pant, chief economist, India Ratings and Research said.

Madan Sabnavis, chief economist, CARE Ratings, said, “This will present a conundrum for the MPC as we have a situation where the CPI headline number is high, core inflation down and food inflation high. However, growth has plummeted going by IIP and the GDP Q2 number will be sub 5 per cent. Based on the tone of earlier statements, there should be a pause in rate cuts. However, if lower growth is the overbearing reason, it can be considered. A pause would sound logical as the effects of the earlier cuts have not yet been seen even in the bond market. We can expect a pause this time.”

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