CPI: Food Inflation Remains Firm…

Given the lockdown conditions across the country, the headline CPI-based inflation numbers were not released for the month of May as well. The price data collection exercise has been in suspension since 19th Mar’20. The inflation data for only such commodities or services sub-groups was declared for which adequate trade data was available. Even as the headline numbers were not collated, the key data point of food inflation was released.

The groups or sub-groups of CPI for which data compilation have been possible are Food & Beverages, Housing, Fuel & Light, and Health (within Miscellaneous group). The Consumer Food Price (CFP) Index inflation for the month of May’20 was reported at 9.28% as compared to 10.49% in the preceding month. Within the food basket, vegetable prices moved lower whereas prices of meat & fish spiked. The inflation for the Housing segment was reported at 3.66% for the month of May’20 as compared to 3.94% during the preceding month.

Given the paucity of data, the core inflation numbers could not be calculated as well.


The headline inflation numbers have now not been released for the second month in a row. The data collation difficulties have led to disruption in the calculation of key economic indicators. The pandemic and the resultant lockdown has brought the entire focus of policymakers on the growth concerns. Over the near term, inflationary risks, if any, are expected to be ignored in favor of gearing the fiscal as well as the monetary policy towards supporting growth. Given this context, the RBI can further reduce the policy rates and also deploy other policy tools to not only support the businesses in this time of crisis but also try to improve demand by reducing borrowing rates.

We had discussed in the previous issues that the food basket could potentially see some upside. The immediate spikes in food inflation may be ignored, but the medium-term trajectory should be kept in focus. The runaway inflation in food articles can have second round effects on inflationary expectations. At the current juncture, if the government manages the supply side and the monsoon remains in line with the initial forecasts, the outlook for food inflation is sanguine.



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