Rise in CPI: How it impacts you

The consumer price index (CPI) inflation increased to 3.05% in May, compared to 2.99% in April, owing to rise in food and vegetable prices. The inflation rate is at 5.46% for vegetables, 1.24% for cereals and products , 8.01% for health products, and 8.12% for meat and fish. Core CPI declined to a 22-month low of 4.21% in May. According to an SBI note, going forward, core CPI will go down and the headline CPI will increase, leading to convergence in coming months. “June CPI inflation is tracking 3.2% on elevated vegetable inflation. High real lending rates continue to hurt growth,’ said Bank of America Merrill Lynch in a note.

HEADLINE, CORE INFLATION

Simply put, inflation is the rise in prices of all goods and services you consume. Headline inflation considers the overall inflation in the economy. It factors essential goods. Core inflation, on the other hand, ignores the food and fuel components, which are extremely volatile in nature.

It reflects the underlying inflation trend by focusing on services such as transportation. If there is a downward movement in core inflation, it indicates that overall inflation is likely to come down. If there is an upward movement in headline inflation, global crude oil prices will be keenly watched.

THE IMPACT

In Mumbai, the prices of tomatoes and other vegetables were up in May. If the prices of vegetable and fruits go up further, you will see the impact on headline inflation and your daily expenses. Price rise in essential goods over a long period hits those in lower income groups the hardest. However, the current CPI numbers are at the target level.

“The CPI inflation, as in the previous months has remained comfortably within the Reserve Bank of India’s (RBI) target level of 4% for about 10 months now. We expect FY20 CPI to average at 3.5%,” said SBI in a note.