Some Respite from High Food Inflation

The CPI based inflation eased after the hardening trend of the preceding three months; headline CPI inflation was reported at 6.93% for the month of Nov’20 as compared to 7.61% for the preceding month and 5.54% during the year ago period. The inflation numbers remained outside the RBI’s target range but eased on the back of fall in food inflation. The surge in food inflation has been the biggest contributor to the hardening trend seen in CPI inflation during the course of CY 2020. The CPI Rural inflation (7.20%) maintained a run rate higher than CPI Urban (6.73%).

The Consumer Food Price (CFP) inflation reported its first single digit reading after a gap of two months. The food inflation had started inching-up since the start of CY 2020 and the inflationary pressures were further accentuated by the pandemic driven lockdown. The high demand for essentials and the logistical hurdles led to sticky food inflation. The CFP inflation came in at 9.43% for the month of Nov’20 as compared to 11% in the preceding month. Along with food inflation the other component to report easing was fuel and light. The inflation numbers for other components remained largely stable as compared to preceding month levels. The inflation in pan, tobacco and intoxicants inflation maintained the double digit growth rate. The sub-components withing the food basket to report easing were vegetables, pulses and meat.

Fuel Prices: The inflationary pressures emanating from the fuel components have remained subdued but that is running the risk of trend reversal. The fuel-based inflation eased to 1.90% for the month of Nov as compared to 2.13% in the preceding month. Oil prices are hovering around the US$ 45-50 levels with an upward bias, as the demand has improved. The demand linked to travel may remain muted owing to the pandemic, but the winter season demand is expected to be strong from US and Europe. The Chinese demand coupled with gradual opening-up of the Indian economy are also oil demand positive.

Core Inflation: The core inflation remained largely stable for the month of Nov’20. The core inflation came in at 5.79% for the month of Nov as compared to 5.76% in the preceding month. The Pan, Tobacco and Intoxicants continued to report double digit inflation. The Miscellaneous component, the indicator of price pressures in services industry, reported inflation of 6.94% in the month of Nov as compared to 6.88% in the preceding month. Within Miscellaneous component, heightened price pressures were seen in Transport & Communication and Personal care and Effects. The Health inflation too moved higher during the month of Nov’20. The opening-up of the economy and the resultant increase in demand has started gradually reflecting in core inflation. The inflation for clothing and footwear component moved up to 3.30% in the month of Nov’20 as compared to 3.10% in the preceding month.

Outlook: The headline inflation numbers gained a much-needed respite from the continuously surging food inflation. The food inflation was expected to ease as the effects of lockdown related logistical hurdles and the monsoon season on prices of perishables was to wane. The food prices remained at higher levels for longer, than what was earlier envisaged. With the consumer demand picking-up pace it would be critical that food inflation is brought under control, so as to keep the headline inflation numbers under check. The core inflation has moved up marginally in the months of November as well and there are risks of rising fuel inflation going ahead, unless managed by way of reducing the taxes. At the current juncture the inflation figures may not hold any monetary policy implications, as the RBI in its latest policy has indicated to maintain an accommodative stance until early next year to support growth. Having said that, a continuously running high inflation may force RBI to revisit some of its policy measures.


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