Retail inflation at a six-year high of 7.61%

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Retail inflation jumped to a six-year high of 7.61% in October from a year ago, compared to an increase of 7.27% in September, a reading that is well above the Reserve Bank of India’s acceptable limit of 4% (+/-2) for the seventh straight month, data released on Thursday by the ministry of statistics showed.

The country’s consumer-price index – a measure of what households pay for everyday items, including fuel, clothing and electricity – is now at its highest level since May 2014, fuelled by persistent high food prices.

Combined (rural and urban) food price inflation rose 11.07% in October on the back of costlier onions, potatoes and other vegetables, up from 9.73% in September, the data showed.

High food costs affect poorer households more than affluent ones. The poor tend to spend a higher proportion of their monthly budgets on food because according to the well-known Engel’s Law, as household income rises, the percentage of income spent on food declines, relative to other expenditure.

Vegetable prices surged 22.51% in October after increasing 20.73% in September, the data showed. Prices of meat and fish increased 18.7% in October against a 17.6% rise in the previous month, while pulses rose 18.34% in October against a 14.67% rise in September.

The upsurge in vegetable prices was driven by damage to stored and freshly harvested onion stocks due to heavy rains last month in states, such as Maharashtra and Karnataka. Higher onion exports this year, of over 2 million tonne till August, also exacerbated domestic shortage.

To curb prices, the government had on Sept 14 banned export of onions. To help quicken imports, the government on Oct 21 relaxed fumigation norms for imported onions. “The directorate general of foreign trade is facilitating private traders to speed up imports by clearing licences and prices have stabilised. At an all-India level, average retail prices of onions have stabilised at around Rs 65 a kg,” food minister Piyush Goyal had told HT on October 30.

Among major categories that make up the consumer price index, fuel and light inflation jumped 2.28%, compared to a 2.87% rise in September, while health costs climbed 5.22%, against a 4.9% surge in the previous month. Household goods and services prices recorded a 2.83% growth, marginally down from September’s 2.9%.

Elevated retail prices not just affect consumers but also shrinks the Reserve Bank’s room to lower interest rates further to boost growth at a time when the pandemic has battered key sectors.

On Wednesday, the Reserve Bank of India, in its first ever ‘nowcast’ note, had said the country had “entered a technical recession in the first half of 2020-21 for the first time in its history”. Growth in the first quarter fell 23.9%, according to official data. The government on Thursday announced a third round of stimulus worth Rs 2.65 lakh to steer the economy out of a deep slump.

“People’s preference for a safe transport option for commute has resulted in transport and communication inflation to increase consistently from March, when it rose 4.3%, to climb 11.16% in October,” said Devendra Kumar Pant, chief economist of India Ratings & Research, a ratings firm.

According to Abhishek Agrawal, an analyst with Comtrade, a commodities-trading firm, October’s retail inflation should “make it clear to policymakers that food inflation has persisted and supply-side constraints are to blame”.

Disclaimer: This post has not been edited by our staff and is published from a syndicated feed. The Original Source of this post can be found at Source link

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