Producers’ inflation, popularly known as Wholesale Price Index (WPI) rose to an eight-month high of 1.48 per cent in October. Last week, the government had announced retail inflation based on Consumer Price Index (CPI) at 7.61 per cent, a 77-month high.

These inflation numbers, and most importantly, the CPI, play an important role in revising policy interest rate. With numbers at a high, there is almost no possibility of lowering the policy interest rate as of now.

Also read: Whose inflation is it?

One of the critical factors for a high inflation rate is vegetables, where inflation rose to 25.2 per cent in October. Pulses, too, saw an increase in prices as inflation was around 16 per cent. However, the prices of meat, egg and fish saw moderation and bringing down the food inflation and inflation for the primary article to 4.7 per cent and 6.4 per cent respectively in October 2020. Deflation in fuel, power and light group increased in October 2020 to -10.9 per cent

Manufactured group inflation increased to 19 months’ high of 2.1 per cent. Core inflation (taking out volatile items such as vegetables, fruits, fuels etc. from overall inflation) increased to 18 months high of 1.7 per cent as against 1.1 per cent in September.

Read more: Retail inflation eases marginally for farm, rural workers in September

According to Devendra Kumar Pant, Chief Economist with India Ratings, the increase in core inflation suggests an improvement in demand conditions, which have improved after Covid-related lockdown was lifted. However, it will be too early to term this as general recovery, a large part of this is due to festival-related demand.

“Rising retail food inflation and declined wholesale food inflation is a nightmare for policymakers. Ind-Ra expects demand to conditions to improve further, however, bigger question is whether increased demand will be sustained after the festive season?” he said.

 

Related Topics
comment COMMENT NOW