Retail inflation grew at 6.7% in August
The number was 0.04 percentage points lower than in July, but still higher than the upper bound of the Reserve Bank of India’s comfort level, 6% -- the fifth time in as many months that it has exceeded this.Updated: Sep 15, 2020, 02:45 IST
India’s retail inflation, measured by the consumer price index (CPI) grew 6.7% in August, powered by an increase in the price of food, and, to some extent, transport and mobile phone bills.
The number was 0.04 percentage points lower than in July, but still higher than the upper bound of the Reserve Bank of India’s comfort level, 6% -- the fifth time in as many months that it has exceeded this.
Food inflation accounts for 39% of the CPI basket, grew at 9%. In categories such as pulses, edible oils, vegetables, spices and eggs, meat and fish inflation grew in double digits. Price of potatoes, the most important vegetable in an average Indian’s consumption basket, grew at 80% on a year-on-year basis. August is the third consecutive month when potato inflation has clocked a number higher than 50%.
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That supply side pressures are beginning to firm up in the economy is evident from the tailwinds to wholesale inflation. The Wholesale Price Index (WPI) returned to positive territory in August (0.16%) after having contracted for four consecutive months. Food prices are the primary driver of a revival in WPI growth as well. WPI for primary food articles grew at 3.8% while WPI for the entire food group clocked a growth of 4% in August.
However, wholesale and retail inflation for mass consumption items in the non-food category continue to remain low. For example, WPI for apparel has been in negative territory for the past three months. Similarly, CPI for clothing and footwear was just 2.8% in August.
Trends suggest that things could get worse. WPI for tea grew at an all-time high of 79% in August; this number was -1.8% in May this year, and increased to 8.9% in June and 45.8% in July. Experts attributed the sharp rise to a big disruption in activity in tea gardens due to the lockdown. CPI for tea leaves -- their weight is almost the same as potatoes -- was just 6% in August. This means they could cause a spike in inflation further down the line.
The other big source of inflationary pressure in the economy is the transport and communication sub-category. It has grown in double digits in both July and August, the highest ever since January 2012, the earliest period for which data is available. A granular examination suggests that this increase is due to rise in cost of petrol and diesel for vehicles and increase in mobile phone bills. As pandemic related restrictions continue to disrupt public transport, even as petrol diesel prices continue to remain high, and work from home (and study from home) requirements force people to increase their mobile phone and data usage, these additional spends might not go away anytime soon. Transport and communication has a 8.6% weightage in CPI.
The high inflation level will be a continued concern for policy makers as it comes on the supply side. Food inflation is higher at 9.1% and is in double digits for pulses, vegetables, oils and meat products”, said Madan Sabnavis, chief economist at Care Ratings. “There are few signs of these prices coming down in the coming months. A good kharif (monsoon crop) harvest can moderate inflation on cereals to a certain extent, but it does look like that food inflation will remain elevated”, he added.
Divakar Vijayasarathy, founder and managing partner at consulting firm DVS Advisors LLP, said: “CPI is expected to ease in the coming months as the supply improves due to the unlock measures; however, the increasing infection numbers could possibly dampen this.”
With inputs from Zia Haq