India’s consumer price inflation rises as food prices soar

New Delhi:  A substantial rise in food prices lifted India’s July retail inflation to 6.93 percent from 6.23 percent in June, official data showed on Thursday.

On a year-on-year (YoY) basis, the CPI inflation more than doubled last month from 3.15 percent recorded during July 2019.

The data furnished by the National Statistical Office (NSO) showed that India’s consumer food price index during the month under review rose to 9.62 percent from 8.72 percent reported for June 2020.

CFPI readings measure the changes in retail prices of food products.

“As the various pandemic-related restrictions were gradually lifted and non- essential activities started resuming operations, availability of price data has also improved,” the NSO said.

“The NSO collected prices from 1,054 (95 percent) urban markets and 1,089 (92 percent) villages during the month of July 2020,” it said.

The data showed that CPI Urban rose to 6.84 percent in July from 6.12 percent in June. The CPI rural increased to 7.04 percent last month from 6.34 percent in June.

The data assumes significance as the Reserve Bank of India, in its recent monetary policy review, maintaining the key lending rates on account of rising retail inflation.

The central bank’s target for retail inflation is set within a band of +/-2 percent.

As per the data, the CPI YoY inflation rate for vegetables and pulses jumped by 11.29 percent and 15.92 percent, respectively, in July.

Furthermore, meat and fish prices rose 18.81 percent and eggs became dearer by 8.79 percent.

In addition, the fuel and light category under CPI rose by 2.80 percent.

“Clearly, the larger concern is the impact of consistently high food inflation on core inflation through cost-push factors; the relatively high figure for transport and communication is a reflection of high tax-driven fuel prices and increase in telecom tariffs,” said Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research.

“We believe that inflationary concerns may lead to a delay in further rate cuts and can raise the risks of stagflation. It is also expected to have an adverse impact on bond yields in the near term and may trigger the higher use of liquidity and yield management tools to optimize the cost of the government’s borrowings.”

According to Devendra Kumar Pant, Chief Economist and Senior Director, Public Finance, India Ratings & Research: “Both industrial production and inflation trend suggest different monetary policy action.”

“Retail inflation breaching the MPC’s upper band of 6 percent in seven out of the last eight months makes the task of the MPC difficult. India Ratings believes the MPC will watch inflation trajectory very carefully before making a decision on further rate cuts.”

Brickwork Ratings’ Chief Economic Advisor M. Govinda Rao said: “The spillovers of the hike in petrol prices are most likely to influence transportation costs adding to inflationary pressures going forward. We expect food inflation to soften in the coming months with easing supply constraints and better monsoon so far.”

“However, the core inflation at 5.5 percent is a cause of concern, and it may remain at elevated levels as the demand picks up, but capacity utilization does not increase commensurately.”


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