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With prices going up much faster in the rural areas compared to urban areas, rate of retail inflation rose to 3.99 per cent in September, the highest after July 2018.
The 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 the highest rise since August 2016. Meat and fish as well as vegetables prices created a hole in the consumers’ pockets.
Rate of retail inflation is close to median of targeted rate of retail inflation as determined by an agreement between the Centre 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, besides 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 the policy rate by 135 basis points (100 basis points mean one percentage point).
Higher rate of retail inflation could either mean consumer demand is picking up or supply is low.
Since WPI has declined it means producers are not getting enough support price to increase the production. So the current spike in retail inflation could be attributed to supply. 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 the Ministry of Statistics and Programme Implementation (MOSPI), rate of retail inflation as represented by the Consumer Price Index (CPI) rose to 3.99 per cent from 3.28 per cent. Rate of retail inflation in the urban area was 4.78 per cent as against 4.49 per cent in August. However, rural area saw sharp rise in retail inflation to 3.24 per cent from 2.25 per cent in August.
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.
The sequential slide in the WPI inflation to a lower than forecast 0.3 per cent in September while broad-based, was driven primarily by deeper disinflation in fuel and power, and core WPI (whole of group minus fuel, food items etc).
Only two of the major categories, namely minerals and manufactured food products recorded an uptick in inflation in September, 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. 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.
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