CPI: At 7.59%, Retail Inflation Spikes To The Highest Since May 2014
Vegetables are displayed for sale at a market stall in New Delhi, India, on Sunday, Feb. 2, 2020. Photographer: Ruhani Kaur/Bloomberg

CPI: At 7.59%, Retail Inflation Spikes To The Highest Since May 2014

Retail inflation in India rose to the highest since May 2014, pushed up by expensive food items and higher telecom tariffs.

Consumer Price Index inflation stood at 7.59 percent in January 2020 compared to 7.35 percent in December 2019, according to data released by the Ministry of Statistics and Program Implementation on Wednesday. Inflation in food and beverages rose to 11.8 percent as compared to 12.2 percent in December 2019.

A Bloomberg poll of 40 economists had estimated inflation at 7.4 percent for January 2020.

Vegetable prices continue to soar compared to last year. Inflation in that category rose to 50.19 percent in January compared to 60.5 percent in December. Other key food items such as cereals, meat, milk and pulses are also now seeing prices rise at a quicker pace. Outside the food and beverages category, inflation in transport and communication rose to 6.08 percent from 4.77 percent in December.

This is the second straight month that retail inflation has remained above the upper end of India’s tolerance band of 2-6 percent. High inflation at a time fragile economic growth has prompted India’s Monetary Policy Committee to keep interest rates unchanged, even as the Reserve Bank of India continues to try and push up credit flow to support the economy.

Inflation Across Key Food Categories

  • Rural inflation stood at 7.73, with rural food price inflation at 13.02 percent. Urban inflation is higher in the food category at 14.77 percent but lower at an aggregate level of 7.39 percent.
  • Within food articles, apart from the 50 percent surge in vegetable prices, pulses inflation, too, is running high at 16 percent. Eggs are costing 10 percent more than last year, while spices are costing 8 percent more.
  • Onion prices are 247 percent over last year, although the inflation rate has fallen from 327.42 percent in December. Inflation in potato prices has surged further to 62.97 percent from 37.58 percent last month. Tomato prices rose 11.27 percent over last year, lower than the 35.27 percent increase last year.

Aditi Nayar, principal economist at ICRA said the inflation print is “entirely unpleasant”, as headline inflation has risen, the decline in food prices has been modest and core inflation is up as well. In addition, more categories within the food basket are rising.

The internals of the food inflation are worrying, given a broad-based uptick across categories that tend to be sticky, such as proteins, and a narrower-than-expected reduction in the inflation for vegetables.
Aditi Nayar, Principal Economist, ICRA

Core Inflation Also Rises

The January inflation print also saw core inflation rise back above 4 percent to 4.19 percent.

  • The biggest jump among core inflation categories was in the transport and communication segment, which rose to 6.08 percent.
  • Inflation in the personal care and effects category is also trending above headline inflation at 7 percent.
  • Clothing and footwear prices rose by 1.91 percent in January 2020 compared to 1.5 percent in December.
  • Housing inflation stood at 4.2 percent compared to 4.3 percent in December.
  • Fuel and light prices rose by 3.66 percent from 0.7 percent in December.
Core inflation has been high with personal care and transport and communication witnessing high rates. While food inflation would moderate as already witnessed in February for vegetables in particular (which showed inflation of 50 percent in Jan), CPI inflation would still be perilously above the 6 percent mark in the coming months.
Madan Sabnavis, Chief Economist, CARE Ratings
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