Rising food prices push retail inflation up in Dec

Food items pushed up retail price index-based inflation in December 2010, besides the more tracked wholesale price index, a point the Reserve Bank of India (RBI) will bear in mind while deciding on its monetary stance tomorrow.

While inflation for the items consumed by rural labour (CPI-RL) rose to 8.01 per cent in December from 6.95 per cent in the previous month, the one for agricultural labour (CPI-AL) moved up to 7.99 per cent from 7.14 per cent over the period.

Costlier onions, milk and other essential items resulted in higher inflation numbers, as was the case with the wholesale price index-based inflation number, which rose to 8.43 per cent from 7.48 per cent over the month.

The retail price inflation, in fact, had started moderating by November, as could be seen from the movement of the numbers for items consumed by industrial workers (CPI-IW), before the spurt in prices of food items, particularly onions, jacked up the figures.

CPI-IW (Consumer Price Index for Industrial Workers)-based inflation came down to 8.33 per cent in November from 9.7 per cent in the previous month.

This figure is all set to go up once the figure for December is out on January 31.

In its report on Macroeconomic and Monetary Developments, released a day ahead of the monetary review, RBI called this just “some reversal” of a generally moderating trend.

“Inflation, as measured by various consumer price indices, generally moderated during 2010-11, with some reversal witnessed in December...Various measures of inflation remained in the range of 8-8.4 per cent in November/December, 2010,” the report said.

The RBI, however, noted that all inflation numbers, based on retail as well as wholesale prices, remained elevated.

While the divergence between headline inflation last year was large, it has narrowed down significantly this year.

It is because food prices have much higher weight in the retail price based indices than just 14.34 per cent in WPI and now it is mainly food items that are leading to rise in inflation numbers.

“While the extent of divergence between WPI and CPI inflation narrowed significantly, both remained elevated leading to significant welfare costs,” RBI said. There are linkages between government outgo on heads like dearness allowance (DA), NREGA and retail inflation.

While DA for the central government employees is based on CPI (IW), NREGA payments are linked to CPI (AL).