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Letter to BS: Services inflation might be one of reasons for slowdown

Till now we are calculating only goods inflation; we have to calculate services inflation as well

Business Standard 

inflation forecast, RBI stance
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This refers to “Walking a tightrope” (September 24). “Low inflation and low growth environment is the new normal”: This might be true for the developed countries, but in the Indian context, there is low growth but not low inflation. First, while calculating inflation, we are not considering fuel inflation that has increased substantially. Food inflation has also been up and down, albeit seasonally, but it affects the purchasing power of the common man. Second, till now we are calculating only goods inflation; we have to calculate services inflation as well. No one is calculating that. Recently, after GST implementation, services costs have increased drastically. The minimum increase in services inflation may be to the extent of 18-28 per cent with the GST rates. Everybody is feeling the heat and the services inflation might be one of the reasons for the current slowdown.

Anand Deshpande, Pune

B Prasanna responds:

Consumer Price Index (CPI) inflation, which is used as the current measure for retail inflation, proxies for fuel inflation through the petrol and diesel prices, unsubsidised LPG, among other components. Recently, global crude prices have been coming down since their peak in October 2018 and this is reflecting in headline inflation. While food prices are volatile, driven by fruits and vegetables, food surplus in the last few years and buffer stock management by the government has reduced the risk of substantial overheating in food prices.

Core inflation (excluding food and fuel) includes services as well. Services inflation has a weight of approximately 28 per cent in CPI and while it includes some goods, it does cover a big component of services including transport, health, education and personal care. These components have also been showing low inflation for the past several months, which is in line with the continued slack in the economy.

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First Published: Thu, September 26 2019. 20:32 IST