Retail inflation soars to 10.79% in January

With the price spiral mainly driven by food items, particularly vegetables, new index reaches its highest

Consumer Price Index-based inflation reached a record of 10.79 per cent in January since the new index’s inception a year earlier. It stood at 10.56 per cent in the previous month. This justifies the Reserve Bank of India’s cautious stance on rate cuts in its monetary review last month.

The price spiral was mainly driven by higher prices of food items, particularly vegetables. The rate of rise went up in both rural and urban parts. For urban areas, it went up from 10.42 per cent in December to 10.73 per cent in January; in rural areas, from 10.74 to 10.88 per cent. Combined inflation was 9.9 per cent in November and 9.75 per cent in October 2012.

While retail inflation rose for a fourth continuous month, economists expect the rise in Wholesale Price Index-based inflation to start easing from March, mainly due to a high base. WPI has been moderating since October and was at 7.18 per cent in December, still above RBI’s ‘comfort zone’ of five to six per cent. RBI has forecast March-end WPI inflation at 6.8 per cent. WPI data for January is expected on Thursday.

RBI had refrained from a steep cut in the repo rate last month, limiting it to 25 basis points in the repo rate, as risks to inflation still existed, it said.

The divergent trend in WPI and the CPI- based inflation was due to the higher weight of food inflation in the latter. Food inflation went up in WPI inflation as well to 11.16 per cent in December from 8.50 per cent in the previous month. However, manufacturing products dominate this index and this brought down the overall rise in WPI.

Food and beverages inflation in the CPI rose 13.36 per cent in January from 13.04 per cent in December. Vegetables recorded the highest inflation, of 26.11 per cent in January from 25.71 per cent in December. Though the government did not release a break-up, it is expected that much of the rise was driven by onions.

However, inflation in the oil and fats segment fell to 14.98 per cent from 16.73 per cent earlier. The rate of price rise in meat, fish and eggs rose to 13.73 per cent from 11.64 per cent during the month. While cereals became dearer by 14.90 per cent in January from 13.70 per cent earlier, pulses saw the rate of price rise declining to 12.76 per cent from 13.46 per cent. Sugar, too, saw inflation coming down to 12.95 per cent from 13.55 per cent in December. Clothing and footwear inflation rose to 11 per cent in January from 10.74 per cent.