The persisting rise in vegetable prices dealt a body blow to headline retail inflation with the Consumer Price Index (CPI) surging to a 14-month high of 6.2 per cent in October. While Chhattisgarh recorded the highest rate of inflation at 8.8 per cent, Delhi saw the lowest at 4 per cent.With latest reading, headline inflation has breached the Monetary Policy CommitteeтАЩs (MPC) tolerance range of 2-6 per cent after a gap of 13 months. Now, experts believe that with print exceeding 6 per cent mark, rate review by MPC is unlikely in December and very remote in February.
Shocker to economy: Costlier veggies drive Oct inflation to 14-month high – The Hindu BusinessLine
Base effect to blame too; vegetable inflation to ease on kharif arrivals
The persisting rise in vegetable prices dealt a body blow to headline retail inflation with the Consumer Price Index (CPI) surging to a 14-month high of 6.2 per cent in October. While Chhattisgarh recorded the highest rate of inflation at 8.8 per cent, Delhi saw the lowest at 4 per cent.
With latest reading, headline inflation has breached the Monetary Policy CommitteeтАЩs (MPC) tolerance range of 2-6 per cent after a gap of 13 months. Now, experts believe that with print exceeding 6 per cent mark, rate review by MPC is unlikely in December and very remote in February.
Food Inflation
VegetableтАЩs inflation in October was the third highest in last 10 years with onion prices yet to stabilise, though prices of potato and onion are down. The highest-ever vegetable inflation in the current season was recorded in December 2019, followed by the second highest in January 2020. Vegetables have the third highest weight after cereals and milk, and with cereals also seeing some price increases, overall food inflation has crossed the double-digit mark after a gap of 14 months. However, experts see some correction.
Paras Jasrai, Senior Analyst with India Ratings & Research (Ind-Ra), says higher September and October vegetable inflation was due to a strong adverse base effect. тАЬGoing forward, while vegetable prices may remain elevated, the vegetable inflation is expected to decline due to favourable base effect and onset of winter,тАЭ he said.
Dharmakirti Joshi, Chief Economist at Crisil, too sees data for November suggest some moderation in vegetable prices. This, in addition to a favourable base, can lend some downside to vegetable inflation.
тАЬWe expect food inflation to ease this fiscal as kharif sowing has been healthy. Vegetable prices can correct sharply when fresh stocks enter the market,тАЭ Joshi said.
Bharat vs India
Recent reports suggested that demands in rural area are accelerating as compared to urban areas and that is also reflected in retail inflation. The same trend is also being seen in rural inflation as headline there maintained lead over urbanтАЩs number. In October, retail inflation for rural was 6.68 per cent, while for urban it was 5.62 per cent.
Explaining this, a research report by SBI says, the gap between urban and rural consumersтАЩ inflation trends was sharp for the 8th consecutive month, with rural households paying 1.07 per cent higher than urban India. тАЬThis is mainly due to the higher food prices and the rural basket of food items weight (54.2 per cent) is higher than the urban weights (36.3 per cent),тАЭ it said.
State-wise inflation
Inflation in bigger States continues to outstrip the all-India inflation rate of the same month. Among the States, Chhattisgarh clocked the highest inflation rate of 8.8 per cent, followed by Bihar at 7.9 per cent and Odisha at 7.5 per cent.
Interestingly, a comparison of year-on-year changes and year to date changes reveal that year-on-year changes are far outpacing year to date changes. For example, there are 7 States, whose year-on year inflation has crossed more than 2 per cent in a year. These indicate that the momentum of food prices has continued to climb up, SBI report said.
Industrial growth
Industrial growth based on Index of Industrial Production (IIP) rose to 3.1 per cent in September after recording a contraction in August as all three major segments тАУ mining, manufacturing and power generation тАУ showed improvement. Now, expectation is that situation will improve further.
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