Inflation rises; food 10% costlier

The consumer-price index in July rose 6.9% from a year ago

rose 8.7%.

CPI measures what households pay for everyday items, including food, fuel, clothing, housing and electricity. Retail inflation in July increased for the fourth straight month, above the Reserve Bank of India’s (RBI) acceptable limit of 4% (+/- 2).

RBI governor Shaktikanta Das, after the central bank’s monetary policy committee (MPC) meeting on August 6, pointed to the possibility of elevated prices. MPC is the panel that reviews the country’s monetary policy and fixes interest rates charged by the banks to borrowers.

“MPC expects headline inflation to remain elevated in Q2:2020-21, but likely to ease in H2:2020-21, aided by favourable base effects,” he said on August 6. Q2 refers to quarter two (July to Sep) of a financial year, while H2 refers to the last six months of the year.

Low inflation helps MPC to bring down interest rates to encourage borrowing by businesses in the hope of spurring growth.

High inflation despite collapsing growth is a worry for economists. “This is a stagflation-like situation, marked by increasing prices and dipping growth. It will thwart the central bank from lowering interests anytime soon,” said Abhishek Agrawal, an economist with commodities trading firm Comtrade.

Rural inflation in July was higher than in urban India, at 7.04%, compared 6.8% in urban parts of the country, the data showed.

Apart from food articles, consumers paid higher prices for transportation services, the data showed.

Vegetable prices in July rose sharply by 11.29% from 4% in the previous month, the data showed. Inflation for fruits stood at 0.13% compared to a 0.3% rise in June, while pulses prices rose by 15.92% in July compared to 17.6% in the previous month.

“What we are seeing are the effects of disrupted supply lines because of two reasons. One, heavy rains in states such as Maharashtra, Bihar and Madhya Pradesh have held up food trucks; secondly, food cargo movement has been still restricted in many cities due to weekend lockdowns,” said Arvind Mahaple, the proprietor of Mahaple Merchants, a fruits trading firm, in Nashik.

CPI measures a basket of six categories of retail items most consumers buy. Food and beverages, with a 45.85% weightage, is the largest category.

The rise in food prices to 9.62% in July will hurt poorer households more because the poor, as a proportion of their monthly budgets, tend to spend more on food.

Inflation in transport and communication category rose 9.95% in July from 8.3% in June.

The National Statistical Office collects price data from 1,114 urban markets and 1,181 villages through personal surveys by field staff.