CPI Inflation Rises To 10-Month High Led By Urban Food Prices

Retail inflation rose to the highest in ten months while inflation in food and beverages stood at a 14 month high in August 2019.

Consumer Price Index inflation stood at 3.21 percent in August compared to 3.15 percent in July, according to data released by the Ministry of Statistics and Program Implementation on Thursday.

A Bloomberg poll of 41 economists had estimated CPI inflation at 3.32 percent for August 2019.

Despite the pick-up, inflation remains well below the Monetary Policy Committee’s target of 4 (+/-2) percent. With GDP growth falling to a six-year low of 5 percent in the first quarter of 2019-20 and inflation remaining subdued, the focus of monetary policy will remain on reviving economic momentum.

The next meeting of the MPC is scheduled for Oct. 4, 2019.

Inflation Internals

The break-up of inflation data shows that while food inflation has risen in urban areas, price increases across most other categories remain subdued.

• Rural inflation stood at 2.18 percent in August 2019 as against 2.19 percent in July 2019.
• Inflation in urban areas stood at 4.49 percent compared to 4.22 percent in the previous month.
• Food and beverages inflation rose to 2.96 percent in August 2019 compared to 2.33 percent in July
• Clothing and footwear inflation was at 1.23 percent compared to 1.65 percent in July.
• Housing inflation stood at 4.84 percent in August compared to 4.87 percent in July.
• Fuel and light inflation continued to contract by 1.7 percent compared to a contraction of 0.36 percent last month.

While the late surge in monsoon rains has narrowed the gap in kharif sowing to a mild 0.6 percent as on September 6, 2019, the flooding in certain areas has led to a continued rise in the prices of vegetables, such as onions, said Aditi Nayar, principal economist at ICRA.

The inflation data also throws up a widening divergence in rural and urban inflation, led by food price inflation in these two segments of the economy.

This difference is because of floods in some parts of the country, said Soumyakanti Ghosh, chief economic adviser at State Bank of India.

Core Inflation Falls Indicating Weak Demand

Meanwhile, core inflation, which excludes food and fuel, moderated to 4.2 percent in August 2019 from 4.25 percent in July, suggesting that demand conditions remain sluggish.

Inflation for household goods and services has been on a declining trend since January 2019, said Devendra Pant, chief economist at India Ratings and Research. In the transport and communications category, too, inflation declined in August 2019 to 1.2 percent, suggesting weak demand conditions in the economy, Pant said.