A customer reaches for a cabbage sitting inside a box at a stall at a vegetable wholesale market in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)  

Consumer Price Inflation Falls Slightly To 5.07% In January

Consumer price inflation moderated slightly in January as the seasonal spike in vegetable prices began to cool off, keeping inflation within the Reserve Bank of India's target band. This comes after the central bank warned of upside risks to inflation in its recent monetary policy review.

CPI inflation stood at 5.07 percent in January, according to data released by the Central Statistics Office today. Economists polled by Bloomberg had forecast retail inflation at 5.1 percent. Inflation had hit a 17-month high of 5.2 percent in December.

Higher vegetable prices, particularly the seasonal surge in onions and tomatoes, has pushed up retail inflation since June when it hit an all-time low. However, a fresh supply of tomatoes starting December-end and onions starting March is expected to pull prices lower. Though prices eased in December, the winter seasonal food price moderation was less than usual, the RBI noted in its outlook earlier this month.

“So far, inflation has stayed within the projected trajectory despite an upside from the prices of oil, fruits and vegetables, and higher housing inflation,” CRISIL research said in a note. “Yet, inflationary risks could mount if risks materialise”.

Consumer Price Inflation Falls Slightly To 5.07% In January

The MPC’s View

India's monetary policy committee, in its bi-monthly review, raised its inflation forecasts and flagged off six risks that could take inflation higher. These included the impact of higher housing rent allowance for employees, rising commodity prices, normalisation of global monetary policy, a higher fiscal deficit, and announcements made in the Union Budget like higher minimum support prices for kharif crops and and an increase in customs duty on some items. The committee expects inflation to be at 5.1 percent in the January-March period and stay between 5.1-5.6 percent in the first half of next fiscal.

The RBI's Industrial Outlook Survey also showed that firms expect raw material prices to rise in the fourth quarter.

In a scenario of improving economic activity, rising input costs are likely to be passed on to consumers.
Monetary Policy Committee Statement

CRISIL said that the government's decision to hike minimum support prices could flare up prices of crops and add to food inflation. At the same time, firmer input costs can push manufacturers to raise prices on prospects of a stronger demand, it added.

The interplay among factors will therefore determine the pressures on inflation.  
CRISIL Research

Inflation Internals

  • The consumer food price index rose 4.7 percent over last year compared to a 4.96 percent rise in December.
  • Prices of pulses and products fell 20.2 percent year-on-year. Prices have softened for the fourteenth straight month.
  • Fuel and light inflation stood at 7.73 percent compared to 7.9 percent in December.
  • Housing inflation stood at 8.33 percent, compared to 8.25 percent in December.
  • Prices of clothing and footwear went up 4.94 percent over last year compared to 4.8 percent in December.

Watch this conversation with Soumya Kanti Ghosh, chief economic advisor at SBI on the key economic data released today.