Thursday, 09 April, 2020

Vegetable prices see 60.5% jump; retail inflation breaches MPC target band

The big news Retail inflation rose in December to highest since July 2014 and 9 other top stories Vendors wait for customers at their respective shops at a retail market in Kolkata. | Reuters
Ginger Lawrence | 14 January, 2020, 04:35

Retail inflation rose to about five-and-half year high of 7.35 per cent in December 2019, surpassing the RBI's comfort level, mainly due to spiralling prices of vegetables as onions were selling costlier.

Spike in headline inflation is an "unwanted complication" in a slowing economy and will prevent the Reserve Bank from cutting rates, analysts said on Monday, warning of the "spectre of stagflation" that India risks getting into. Prices of eggs increased by 8.7%, and prices of food and beverages overall increased by 12.16%.

Meanwhile, potato inflation went up to over 37 percent in December from 2.3 percent in November 2019. The analysts at Crisil explained that food is the noisemaker at present and if one were to exclude vegetables and pulses which have resulted in the spike, food inflation comes at 5 per cent which is still at a 33-month high.

Official data released showed the consumer price inflation fastened to 7.35 per cent in December, driven largely by a massive increase in vegetable prices. The previous high in retail inflation was witnessed at 7.39% in July 2014.

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Government data however shows that "core inflation" - a metric that excludes generally volatile components like food and energy - came in only at 3.7%, a slight increase from a year ago.

Icra principal economist Aditi Nayar said the revision in rail fares, uptick in prices of some categories of automobiles and an unfavourable base effect may contribute to a further uptick in the core inflation to around 4 per cent in the ongoing month.

Prices of meat and fish increased by 9.5% as against 9.38% in November. "Even so, our estimates suggest inflation will likely remain above 6.5% in 4QFY20 and could constrain a rate cut in February", financial services firm Edelweiss said in a statement. In its last bi-monthly policy review in December, the RBI kept the key interest rates on hold in a surprise move citing concerns about inflation in the near term.

"The path of CPI in the March quarter would be defined by the extent of unwind in vegetable (primarily onion) prices, but rising price of pulses needs to watched too".