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Pricier foods push retail inflation to 16-month high

Thu Nov 14 2019

 

 

After remaining within Reserve Bank of India's (RBI) target of 4 per cent for 14 consecutive months, the Consumer Price Index (CPI)-based inflation in October 2019 came in at sixteen months high of 4.62 per cent on higher food prices.

 

The latest CPI print was higher than the retail inflation level of 3.38 per cent recorded in October 2018. It was also higher than the 3.99 per cent recorded in September 2019.

 

The main driver for the CPI inflation increase to 4.62 per cent was the consumer food price inflation, which surged to 7.89 per cent in October 2019 from 5.11 per cent in September 2019. Consumer Food Price Inflation had contracted 0.86 per cent in October 2018.

 

The demand conditions have plummeted and core inflation in October 2019 declined to 3.47 per cent (September 2019: 4.02 per cent, October 2018: 6.19 per cent).

 

Core inflation in October 2019 is the lowest in the present CPI series, and the lowest in last 94 months (CPI 2012 base inflation is available from January 2012). Inflation of miscellaneous group (mainly services) too declined to 3.4 per cent, 27 months low.

Expert's take

 

Devendra Pant, Chief Economist, India Ratings said that the October 2019 CPI inflation increase was led primarily by seasonal items such as: eggs, fruits, vegetables, and pulses and products.

 

All these prices increases are cyclical in nature and have strong base effect — low inflation in 2018.

 

“Although headline CPI inflation in October 2019 has breached 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 RBIs monetary policy review and RBI to continue with accommodative policy and expect further rate cut in the policy review of December 2019”, Pant told BusinessLine.

 

Aditi Nayar, Vice President and Principal Economist, ICRA said that the spike in the retail inflation in October 2019 was primarily driven by food inflation, whereas the core CPI inflation recorded an expected moderation driven by a favourable base.

 

“The sharp uptick in the CPI inflation in October 2019 has contrasted with the industrial contraction recorded in September 2019.

 

In our view, the extent to which the Q2 FY2020 GDP growth reading eases further from the 5.0 per cent recorded in the previous quarter, will influence the MPC's decision on whether to cut rates further, and by how much, in the December 2019 policy review”, she said.

 

Overall, the CPI inflation may continue to print higher than 4.0 per cent in the remainder of FY2020, complicating policy choices in light of the slowdown in economic growth momentum, Nayar said.

 

Looking ahead, ICRA expects the core-CPI inflation to inch up modestly from the level recorded in October 2019, but not breach 4 per cent. The pace of normalisation in vegetable prices will be the key driver of the trend in food inflation over the next few months, according to Nayar.

 

Source: https://www.thehindubusinessline.com

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