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CPI inflation rises marginally to 3.2% in August on back of food prices

Among the food items, the sharpest YoY uptick was for vegetables at 6.9%, pulses and products at 6.94%, and meat and fish at 8.51%

Arup Roychoudhury  |  New Delhi 

WPI, Inflation

Consumer price index-based inflation (CPI) for August crept up slightly to 3.21 per cent year-on-year, compared with 3.15 per cent in July, driven by a sharp rise in food prices. The latest print is still comfortably below the Reserve Bank of India’s (RBI’s) 4 per cent mark, and thus analysts continue to expect further rate cuts by the Monetary Policy Committee.

Consumer food price inflation (CFPI) for August rose to 2.99 per cent from 2.36 per cent in July, official data released on Thursday showed. CPI for August 2018 was 3.69 per cent, while CFPI was 0.29 per cent.

“With the recording only a mild increase in August 2019 despite the sharp uptick in the food inflation, we continue to expect the MPC to reduce the repo rate by 15-25 basis points in the October 2019 policy review, given the continuing concerns related to economic growth,” said Aditi Nayar, principal economist, ICRA Ltd.

Among the food items, the sharpest year-on-year uptick was for vegetables at 6.9 per cent, pulses and products at 6.94 per cent, and meat and fish at 8.51 per cent. Among the non-food items, education and personal care and effects saw a rise of 6.10 per cent and 6.38 per cent, respectively, health saw an increase of 7.84 per cent, and housing 4.84 per cent.

“Food inflation has increased to 3% which is interesting as it means farmers are getting higher incomes which will help rural consumption if sustained. However, the fact that food inflation has been increasing can lead to higher headline inflation with core inflation being stable at 4.3 per cent,” said Madan Sabnavis, chief economist with Care Ratings. Sabnavis added that if vegetable and pulses prices increase, inflation may move up further but will remain under the 4 per cent mark as long as crude oil prices remain benign.

“Core-core inflation, a proxy for demand conditions in the economy has remained less than 5 per cent since April 2019. Inflation for household goods and services is on declining trend from January 2019 and for transport and communications has declined in August 2019 to 1.2 per cent from 1.6 per cent in June 2019. This suggests weak demand conditions in the economy,” said Devendra Kumar Pant, chief economist at India Ratings.

“At present, we expect the to inch up in the next print, while remaining well below the MPC’s target of 4 per cent," said ICRA’s Nayar and added that food inflation will continue hardening in the coming months.

Pant said that there will be pressure onRBI to take monetary measures to support growth. “We expect RBI to cut policy repo rate in its October 2019 monetary policy review. However, its impact on growth is contingent on faster transmission and consumer response to rate cut. In a situation of declining income growth and fall in household savings rate, the policy rate cut is likely to achieve limited objective,” he said.

Gross domestic product (GDP) in India grew at 5 per cent in April-June 2019, the slowest since 2013, on account of subdued economic activity in sectors, from services and manufacturing, to agriculture and construction. But more importantly, the economy grew at 8 per cent in nominal terms — courtesy low levels of inflation — the slowest since the third quarter of 2002-03, taking into consideration the previous two series of national accounts.

First Published: Thu, September 12 2019. 21:22 IST
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