RETAIL INFLATION AT 14-MONTH HIGH, WPI FALLS TO 39-MONTH LOW

The CPI inflation rate rose to a 14-month high of 3.99 per cent in September, closer to an average of the Reserve Bank of India-mandated target of 2-6 per cent, from 3.28 per cent in August. The WPI inflation rate, on the other hand, fell to a 39-month low of 0.33 per cent. This has largely to do with more weight that the food items have in the CPI than in the WPI. Food items have around 15 per cent weight in the WPI and more than 45 per cent in the CPI.

The inflation rates in terms of the consumer price index (CPI) and the wholesale price index (WPI) continued to chart divergent paths for the second consecutive month in September.

The CPI inflation rate rose to a 14-month high of 3.99 per cent in September, closer to an average of the Reserve Bank of India (Rbi)-mandated target of 2-6 per cent, from 3.28 per cent in August. The WPI inflation rate, on the other hand, fell to a 39month low of 0.33 per cent from 1.08 per cent over the same period. This has largely to do with more weight that the food items have in the CPI than in the WPI. The food items have around 15 per cent weight in the WPI and more than 45 per cent in the CPI.

The CPI food inflation rate rose to 5.11 per cent in September from 2.99 per cent in the previous month. Within food items, vegetables saw inflation rate rising to 15.40 per cent from 6.90 per cent in this period. Within vegetables, the inflation rate in onions climbed to 66.38 per cent from just 6.37 per cent.

In fact, onions had seen a price fall of 7.42 per cent in July.

“The sharp jump in the CPI inflation rate in September was single-handedly driven by food items, a portion of which is likely to prove temporary, even as all of the other major categories recorded a moderation in inflationary pressures,” said Aditi Nayar, principal economist at ICRA.

D K Joshi, chief economist at CRISIL, said vegetable inflation vaulted 850 bps to 15.4 per cent, and drove up food inflation 212 bps to 5.11 per cent. “This is a blip and should correct going ahead. Overall, food inflation could remain high this year even as core inflation declines. That should improve terms of trade for the farmers,” he said.

Shubhada Rao, chief economist at Yes Bank, said food price pressures led by vegetables ( read onions) have resulted in the headline number at a 14-month high. “We believe weather related supply disruption has caused this spike. We expect food related price pressures to continue until October and thereafter begin easing,” she said.

Madan Sabnavis, chief economist at CARE Ratings, said any increase in the CPI inflation rate from now on should mean that the accommodative stance of the RBI has to change. RBI’S monetary policy committee had cut the policy rate for the fifth consecutive time earlier this month to propel the economic growth rate, which fell to 5 per cent in the first quarter of 201920. Rao, however, said, “With growth numbers remaining fairly weak we expect RBI to continue with its rate cuts. For remaining FY20, we expect 25-40 bps of rate cut.”

Though the food inflation moderated a bit in the WPI, it still remains elevated at 7.47 per cent in September. It was 7.67 per cent in August. Here as well, onions saw inflation rate jumping to 122 per cent from 33 per cent in this period.

The two other broad categories of fuel and light and manufactured items saw prices falling in the WPI, which was partly due to international factors and subdued demand.

In the CPI also, the fuel and light category continued to see deflation. The deflation rate, in fact, rose to 2.18 per cent in September from 1.70 per cent in the previous month.

After remaining steady in July-august 2019, the core CPI inflation eased to a 26-month low of 4.2 per cent in September 2019, offering some relief in light of the significant uptick in headline inflation. Health services in the CPI continued to see the inflation rate above seven per cent though it moderated to 7.66 per cent from 7.84 per cent.