CPI-based inflation debuts price rise blues for cities

Consumer Price Index (CPI)-based inflation, announced for the first time on Tuesday, stood at 7.65 per cent in January year on year.

The rate of price rise was a bit higher in urban areas (8.25 per cent) than in rural (7.38 per cent). Unlike Wholesale Price Index (WPI), CPI captures inflation in services, which showed price rise at 8.93 per cent. The numbers were 9.81 per cent for rural and 7.97 per cent for urban areas. Services include education, medical care, recreation and amusement, transport and communication, personal care and effects, and household requisites.

With inflation near double digits for services in rural areas, economists said the Reserve Bank of India should not go for rates cut in its monetary review next month. Inflation is in two-digit space in clothing, bedding and footwear, fuel and light, and protein-based items in food articles, housing (of which rent is a dominating part), they argued. But, they would not be surprised if government pressure forces RBI to cut rates. “... inflation is quite on a higher side. But it will not be surprising if the apex bank goes for a rate cut due to pressure from the finance ministry to revive the economy through growth,” said CARE Ratings chief economist Madan Sabnavis.

RBI should not look at CPI data to cut rates, he added, as people do not borrow to finance consumption. They borrow only for asset creation.

ICRA economist Aditi Nayar said the combined CPI data show that inflation is uncomfortably high even as inflationary expectations remain elevated. “Although the pace of GDP growth in third quarter of this fiscal would be an important cue, we expect that the RBI may leave the repo rate unchanged in the mid-quarter policy review in March 2012.”

At an industry chamber function, Finance Minister Pranab Mukherjee said, “A tight monetary policy has impacted investment and consumption growth through higher cost of credit.”

The retail inflation captured was higher than the wholesale price inflation for January, which was at 6.55 per cent.

But the two are not strictly comparable.

Part of higher inflation in urban areas could be attributed to housing category — a segment not considered while calculating the rural areas’ numbers. Housing —rent, repair, maintenance and water charges — saw the rate of price rise growing 12.67 per cent.

Clothing, bedding and footwear recorded the maximum inflation among the broad categories at 14.25 per cent. fuel and light was at 13.13 per cent.

WPI had recorded food deflation for January at 0.52 per cent under primary articles and inflation at 5.57 per cent under manufactured products. But the CPI price rise in food and beverages stood at 4.11 per cent.