Consumer inflation inches up close to 4% in September on costlier food items

With prices going up much faster in rural area than urban area, rate of retail inflation inched up to 3.99 per cent in September, the highest after July 2018.

Most worrying part is that food inflation doubled in the month of September to 5.11 per cent from 2.99 per cent in August. This is highest since August 2016. Meat and fish as well as vegetables prices created a hole in consumer pockets.

Rate of retail inflation is close to median of targeted rate of retail inflation as determined by an agreement between Central Government and the Reserve Bank of India in 2016. Targeted rate is 4 per cent with two per cent swing in both the direction. Based on the movement in this rate beside other factors, the Monetary Policy Committee (MPC), under the Chairmanship of the RBI Governor takes a call on policy rates. So, far, the MPC has lowered policy rate by 135 basis points (100 basis points mean one percentage point).

Higher rate of retail inflation could either mean consumer’s demand picking up or supply is low. Since WPI has declined, which means producers are not getting enough support price to increase the production. So, current spike in retail inflation could be attributed to supply. Now, based on the two inflation numbers and contraction in industrial growth, MPC is expected to lower the policy rate again in December, when it will meet to review the policy.

Retail Inflation

According to data released by Ministry of Statistics and Progremme Implementation (MOSPI), rate of retail inflation as represented by Consumer Price Index (CPI) rose to 3.99 per cent from 3.28 per cent. Rate of retail inflation in urban area was 4.78 per cent as against 4.49 per cent. However, rural area saw sharp rise in retail inflation with rate jumped to 3.24 per cent from 2.25 per cent in August.

People observed sharadh and first two days of navratri during September. Normally, non vegetarian food is not consumed in many parts of the country during these events, still rate of retail inflation for meat & fish stood at 10.29 per cent while that of vegetable was at 15.4 per cent. Analyst feel that retail inflation expected to go up further because of delayed withdrawal of monsoon.

Wholesale Inflation

Meanwhile, producers’ rate of inflation, better known as Wholesale Price Index (WPI), stood at 0.33 per cent in the month of September as compared to 1.08 per cent in August.

While broad-based, was driven primarily by deeper disinflation in fuel and power, and core WPI (whole of group minus fuel, food items). Only two of the major categories, namely minerals and manufactured food products recorded an up tick in inflation in September 2019, underscoring the relatively benign inflationary conditions at the wholesale level for non food items.

According to Aditi Nayar, Principal Economist with ICRA, while on a month-on-month basis the index for non-food manufactured products remained unchanged, underscoring the weakness in pricing power, the base effect contributed to a deeper disinflation in the core WPI in September 2019. The late withdrawal of the monsoon and flooding related damage to standing crops in various states need to be viewed with caution.

“We expect the wholesale food inflation to remain elevated in the immediate term. Nevertheless, unless pricing pressures re-emerge in core WPI items, the likelihood of which appears bleak at present, the headline WPI may slip into disinflation in the ongoing month,” she said.