Retail inflation rises again on spiralling food prices

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SME Times News Bureau | 14 Jun, 2016
Country's retail inflation rose for the second straight month in May to 5.76 per cent from 5.47 per cent in the month before due to a sharp spike in food prices, according to official data on the Consumer Price Index (CPI) released on Monday.

The annual retail inflation rose to the current level from 4.83 per cent in March, 5.26 per cent in February and 5.69 per cent in January. The food inflation, in fact, rose by more than one percentage point to 7.55 per cent from 6.40 per cent in the April, fresh data showed.

Food inflation was at 5.21 per cent in March.

Data released by the Central Statistics Office revealed that the retail inflation in rural areas was much higher at 6.45 per cent, against 4.89 per cent in the urban enclaves. But food inflation was somewhat in a similar range of 7.75 per cent and 7.24 per cent, respectively.

The fresh data also showed that prices of pulses in May were as much as 31.57 per cent higher than the level a year ago. The price increase was 13.96 per cent for sugar and 10.77 per cent for vegetables, though fruits were dearer at a relatively lower rate of 2.64 per cent.

Prices of several other commodities of daily consumption have also been pinching the consumers. The annual inflation in eggs is 9.13 per cent as in May, 8.67 per cent for meat and fish, 9.72 per cent in spices, and 4.83 per cent in oil and fat.

The numbers show that the spike in prices has been more near-term -- that is, over the past month alone (May over April), the general index has shot up by over one percentage point, while for the food index the rise has been nearly 2 per cent.

But here, the rise in food prices in urban areas has been as much as 2.59 per cent in a matter of one month, as against a relatively lower 1.60 per cent in rural areas.

Inflation was one of the reasons why the central bank has left its key policy rates and reserve rations unchanged, despite a clamour for cuts from stakeholders due to the successive poor showing by the manufacturing sector.

"The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain," Reserve Bank of India Governor Raghuram Rajan had said during the second bi-monthly monetary policy update.

"Expectations of a normal monsoon and reasonable spatial and temporal distribution of rainfall, along with various supply management measures and the introduction of the electronic national agriculture market trading portal, should moderate unanticipated flares of food inflation."

According to Sunil Kumar Sinha, principal economist, India Ratings and Research, retail inflation came under pressure from the rise in food prices.

“A glance at the source of food inflation suggest that the pressure is mainly emanating from protein rich items like meat, egg, fish and pulses coupled with vegetables and sugar," Sinha said.

"Clearly, the price rise in a number of these items are less cyclical and more structural in nature. Therefore, pinning hope on the monsoon to bail us out on the inflation front would be a misplaced bet.”

Instead, Upasna Bhardwaj, economist at Kotak Mahindra Bank, said that adequate rains might eventually neutralise the recent uptick in the prices of vegetables and fruits in subsequent months.

"A prudent food management policy and modest increase in MSPs (minimum support price) is likely to keep a lid on any sharp upticks,” Bhardwaj said.

Dhananjay Sinha, head - institutional research, economist and strategist with Emkay Global Financial Services, pointed out that steeper increase in inflation was witnessed in rural areas as compared to urban enclaves.

This was mainly due to sharper increase in food inflation and relatively softer ease down in miscellaneous inflation in rural areas, he said.

"We maintain our thesis that higher government consumption spending along with recovery in global commodity prices and currency depreciation will contribute towards rising inflationary pressure in foreseeable future," Sinha said.

"We expect CPI inflation at 6-6.5 per cent and WPI 3.5 per cent."