Retail inflation stays put at double digits

Owing to rise in prices of food items such as sugar, pulses and vegetables, India’s retail inflation remained in double digit in August, laying persistent pressure on the Reserve Bank of India (RBI) to have a firm handle on price rise despite increasing growth risks.

The RBI in its mid-quarter monetary policy on Monday had expressed concerns that the core Consumer Price Inflation (CPI) was going up, thereby meaning, the space was extremely limited for lowering rates. Tuesday’s data on CPI reaching 10.19 per cent has nearly confirmed doubts about the central bank holding back its decision even in the next policy review due on October 30.

Going forward, retail inflation is likely to be even higher, once the rise in diesel prices are reflected in the inflation figures from next month, analysts said. The CPI for vegetables rose close to 21 per cent during August, while food and beverages increased over 12 per cent, sugar rose by a steep 17.50 per cent and pulses over 16 per cent.

CPI, which measures inflation at the level of consumer, has a higher weightage on food and fuel. Food items have a weightage of close to 50 per cent in the CPI.

Economists were also of the view that food prices, which seasonally tend to firm up between October and December, will keep inflationary pressure high in coming months too.
India’s retail inflation is the highest among the BRICS (Brazil, Russia, India, China, and South Africa) economies, and much above RBI’s comfort zone of 5-6 per cent.

It was inflation concern which held back the RBI lowering interest rates in Monday’s policy review despite the government taking a slew of measures last week.