Retail inflation: Why your grocery bill could remain high

Consumers staring at rising prices are unlikely to have much reprieve. Analysts believe that retail inflation may be peaking now but caution that prices will remain high in coming months.

So while onion prices have come down, your monthly grocery bill could still be on the higher side for the first half of 2020 as food inflation becomes is more broad based. Pain points amongst food items could be cereals, meat, fish, milk, pulses, oils and sugar — all of which seem to be on a rising trajectory.

The steep hike in LPG cylinder prices of ₹144.5 in Delhi to ₹149 in Kolkata will add to inflationary pressures.

Official data revealed that retail inflation surged to a 68-month high of 7.59 per cent in January, against 7.35 per cent in December 2019 and 1.97 per cent in January 2019.

Retail inflation based on CFPI (Consumer Food Price Index), remained in double digits, but came down slightly to 13.63 per cent in January, from 14.19 per cent in December.

‘Inflation to remain high’

“Protein inflation (based on meat and fish, egg, milk and pulses) inched up to 42-month high of 9.2 per cent due to a sharp increase in milk prices. Milk inflation increased to 5.6 per cent in January 2020, up from 0.7 per cent twelve months ago. This shows that there is more to the food inflation story than just high onion prices,” noted ICICI Securities in a research report. The report also noted that while the base effect is expected to turn favourable from February, inflation could remain elevated for the remaining two months of the fourth quarter.

Sunil Kumar Sinha, Principal Economist, India Ratings noted that except food and housing, inflation for all broad groups increased sequentially in January 2020. “This is suggestive that inflation may be slowly turning structural even though vegetables inflation, which is largely cyclical, has remained in excess of 30 per cent since November 2019. India Ratings expect cereals inflation to remain high till October 2020,” he said, adding that even prices of meat and fish, egg, milk and products, and services inflation is rising.

According to a BofA report, the CPI retail inflation in February could come in by about 7.3 per cent.

Core inflation

Core inflation rose to a five month high of 4.2 per cent in January, and is also turning into a worry, although some believe that it remains benign and the rise in January was due to higher telecom prices.

The food index with a 46 per cent weight in the CPI basket continues to explain an elevated 70 per cent of headline inflation, said an HSBC Global Research report, adding that although vegetable prices fell in January after five months of sequential growth, other components of food inflation, namely proteins , oils and sugar ticked up.

“This is in line with our concern that food inflation could remain on the higher side even after a new vegetable crop arrives,” it said, adding that core inflation has also picked up sharply. “The uptick seems fairly broad-based, across telecom, health, personal care items, recreation and household goods and services indices,” it noted.

The Reserve Bank of India in the sixth bi-monthly monetary policy statement had also noted that the recent pick-up in prices of non-vegetable food items — specifically in milk — was due to a rise in input costs, and in pulses due to a shortfall in kharif production, are all likely to sustain.

“These factors could impart some upward bias to overall food prices,” it had said, while revising upwards the CPI inflation projection for the fourth quarter to 6.5 per cent.

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