From Cooking Oil To Petrol, Your Household Budget Is Getting Stretched
Prices for a number of household goods and services rose in May. What's hurting your budget most?
The Covid-19 pandemic has meant economic hardship for many. Mobility has been constrained, availability of work is low and incomes are volatile. To add to that, prices are now rising at a pace considered unacceptable as per India’s inflation policy framework.
Retail inflation in May rose to 6.3% compared to 4.23% in April, showed data released by the government on Monday. The rise in prices was broad based, with items ranging from cooking oil to fruits, fuel to healthcare seeing higher costs.
Items Seeing Highest Inflation
Oils and fats, that account for 4.2% of a consumer basket, now cost 30.8% more than they did a year ago.
Eggs cost 15% more, as do non-alcoholic beverages. You are paying 12% more for fruit as well. Transportation costs, brought on by the rise in fuel prices, rose by 12% and fed into final prices of a number of items. Fuel prices rose more than 11% compared to a year ago.
A number of Indian states have had to impose lockdowns to deal with the second wave of Covid-19 cases. This may have brought on supply disruptions in some cases and led to volatility in prices in May. However, a number of these categories have now seen persistently higher inflation for a variety of reasons.
Higher cooking oil prices, for instance, are a reflection of rising prices globally as India imports much of its needs in this category.
In the case of meats and eggs, a rise in the cost of feedstock has led to prices being raised.
While the increase in prices of fruits may be linked to seasonal factors and some disruption in supplies, the inflation in pulses has remained high for a few months now.
Where Prices Have Risen In Recent Months
Inflation, by definition, is the increase in prices compared to a year ago. However, last year, India was in the midst of a nationwide lockdown which led to distortions in supply and prices of a number of items. This, in turn, may lead to inflation rates which do not give an accurate picture of prices in the economy.
Which items have seen the sharpest increase in prices over the past six months? This can be judged by tracking the movement of price indices over consecutive months.
Within these categories, some prices have risen more than others.
Mustard oil, refined oils and vanaspati have shown the sharpest rise in prices so far this year, even as prices of ghee and butter have remained stable.
Chicken has shown a sharper rise in prices, compared to mutton, beef or pork.
In fruits, guavas, oranges, papayas and apples recorded a consistent rise in prices, even as watermelons saw a decline in price.
Goods for recreation and hobbies saw prices double.
Why Are Prices Rising?
Prices will typically rise if there is a fall in supply or a rise in demand. In the current scenario, most economists do not believe that a broad rise in demand is likely given the weakness in jobs and incomes. Are prices then rising mostly because of supply disruptions?
The explanations vary across categories and remain incomplete.
For instance, while local demand for fuel and related items may be weak, strong global demand has meant higher prices. But other forms of fuel, used locally, have also seen prices rise, pointed out QuantEco Research in a note on Monday.
"Fuel inflation posted a robust sequential increase of 2.19% month-on-month led by a jump in price for dung cake, firewood and chips, diesel, kerosene, and electricity. Most of these items barring diesel and kerosene are not linked to global price of crude oil," the note said.
In the category of foods, too, a confluence of factors are driving up prices, including higher food costs globally, disruptions faced locally and in some cases higher mark-ups in prices, said Nomura economists Sonal Varma and Aurodeep Nandi in a report.
"We were building in a rise in prices of protein items (meat and fish, eggs and pulse), vegetables and in global price-linked categories like sugar and beverages, but the quantum of increase across most of the categories has been an upside surprise," they wrote. "The rise in cereals (1.4% month-on-month) and spices (2.6%) seems at odds with the trends we have observed in daily prices across May, suggesting sharply higher mark-ups."
Kaushik Das, chief economist at Deutsche Bank, pointed to the fact that the cost of a number of services is rising too. This, he said, could be the impact of lockdowns imposed.
For instance, household goods and services costs rose 2.1% in May, healthcare costs rose 2.2%, recreation and amusement costs rose 1.9% and education costs were up 0.9%, Das pointed out.