Retail inflation in up to six years of 7.61%
Retail inflation jumped to a six-year high of 7.61% in October from a year earlier, compared with a 7.27% increase in September, a reading that is well above the Bank of America’s acceptable limit. India’s reserve of 4% (+/- 2) for the seventh consecutive month, data released 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, driven by persistent high prices for the food.
Combined (rural and urban) inflation of food prices rose 11.07% in October due to more expensive onions, potatoes and other vegetables, up from 9.73% in September, the data showed.
High food costs affect the poorest households more than the rich. The poor tend to spend a greater proportion of their monthly budgets on food because, according to the well-known Engel’s Law, as family income increases, the percentage of income spent on food decreases, relative to other expenses.
Vegetable prices rose 22.51% in October after rising 20.73% in September, the data showed. Meat and fish prices increased 18.7% in October compared to a 17.6% increase in the previous month, while legumes increased 18.34% in October compared to an increase of 14.67 % in September.
The rise in vegetable prices was due to damage to freshly harvested and stored onion stocks due to heavy rains last month in states such as Maharashtra and Karnataka. Larger onion exports this year, over 2 million tonnes through August, also exacerbated domestic shortages.
To curb prices, on September 14 the government banned the export of onions. To help speed up imports, on October 21 the government relaxed the fumigation rules for imported onions. “The General Directorate of Foreign Trade is making it easier for private traders to accelerate imports by liquidating licenses and prices have stabilized. Across India, average retail prices for onions have stabilized at around 65 rupees / kg, ”Food Minister Piyush Goyal told HT on October 30.
Among the main categories that make up the consumer price index, fuel and electricity inflation rose 2.28%, compared to a 2.87% increase in September, while healthcare costs rose 5.22 %, compared to a 4.9% increase in the previous month. The prices of goods and services for the home registered a growth of 2.83%, slightly below the 2.9% in September.
High retail prices not only hurt consumers, but also reduce the Reserve Bank’s room to lower interest rates further to fuel growth at a time when the pandemic has hit key sectors.
On Wednesday, the Reserve Bank of India, in its first ‘immediate’ note, had said that 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 announced on Thursday a third round of stimulus worth 2.65 lakh rupees to lift the economy out of a deep recession.
“People’s preference for a safe transportation option for daily trips has caused transportation and communications inflation to rise steadily since March, when it rose 4.3%, to rise 11.16% in October,” said Devendra Kumar Pant, chief economist at India Ratings & Research. a rating firm.
According to Abhishek Agrawal, an analyst at Comtrade, a commodity trading company, October’s retail inflation should “make it clear to policymakers that food inflation has persisted and supply constraints are to blame. “.