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Retail inflation eases to 4.06% in Jan as food prices cool down

BusinessToday.In     February 12, 2021

Retail inflation, calculated on the basis of Consumer Price Index, declined to 4.06 per cent in January from 4.59 per cent in December last year as food prices eased significantly, according to the data released by the Ministry of Statistics and Programme Implementation (MoSPI). Inflation in food basket almost halved to 1.89 per cent in January as compared to 3.41 per cent recorded in the previous month. The decline in food prices came on the back of 15.84 per cent decline in vegetable prices during the month under review.

Apart from vegetables, the only group to see decline in prices was sugar and confectionary, where inflation marginally eased by 0.26 per cent. Prices of cereals and products increased marginally by 0.07 per cent. Meat and fish got costlier with an inflation rate of 12.54 per cent, whereas eggs saw inflation rate of 12.85 per cent. Oils and fats saw the highest inflation rate during January at 19.71 per cent.

Prices of pulses and products increased 13.39 per cent, whereas non-alcoholic beverages got costlier by 13.15 per cent. Fruits saw only 4.96 per cent increase in prices, while spices became costlier by 9 per cent. Milk and dairy products prices grew 2.73 per cent, while fruit prices rose 4.96 per cent.

This is the second month in a row when retail inflation has remained within the tolerance range mandated by the Reserve Bank of India, which has an upper limit of 6 per cent and a lower limit of 2 per cent. The central bank closely follows consumer price inflation while deciding key policy rates during its monetary policy meetings. In its last meeting, the monetary policy committee (MPC) had retained policy repo rate at 4 per cent, while maintaining accomodative stance.

"Finally, the inflation rate has come well below the RBI's threshold rate, and this actually gives some relief to the markets on the immediate trajectory of interest rates. However, core inflation is perched at 5.70 per cent, something that may take more time to move down. Likely pressures in future from escalating oil prices cannot be ruled out. But the more pertinent factor is that the immediate threat of the price level pressures may not be there before the policymakers," said Joseph Thomas, Head of Research - Emkay Wealth Management.

Meanwhile, India's industrial output, measured by the Index of Industrial Production (IIP), grew 1.04 per cent year-on-year in December, showed government data released on Friday. Electricity sector output grew 5.12 per cent in December, while manufacturing also registered a 1.55 per cent growth. However, mining output contracted by 4.80 per cent.

"The January CPI print was slightly below our expectation, as the rise in real time prices of cereals in January did not fully feed into the CPI print, but it was mainly driven by the ongoing strong deflation in vegetables and fall in prices of meat, fish and eggs," said Sreejith Balasubramanian, Economist - Fund Management, IDFC AMC.

"However, sequential momentum in core inflation has risen, following the highest ever WPI-Core momentum reading in December, rising mobility indicators and falling Covid cases. Going forward, the base effect which helped recent lower prints, will wane in February and March and the magnitude of disinflation in vegetables would also most likely ease, while the price movement in pulses and vegetable oils needs to be watched closely," he added.

ALSO READ: Industry output rises 1% in December on growth in electricity, mining

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