Retail inflation, as measured by the Consumer Price Index (CPI), slipped markedly by one percentage point to 9.39 per cent in April this year from 10.39 per cent a month ago following a declining trend in the prices of vegetables, edible oils and protein-based products.

However, the significant fall in CPI inflation failed to cheer up the economic environment as the positive news was eclipsed by the trade data which showed a whopping 138 per cent rise in gold imports during April worth $7.5 billion to add to the government’s worries on the CAD (current account deficit) front.

Reflecting the CAD concerns, the Bombay Stock Exchange’s sensitive index (Sensex) tanked over 430 points, and the downtrend in retail inflation for the second month in a row went largely unnoticed.

As per the CPI data, the price spiral in the vegetables segment declined substantially from 12.16 per cent in March to 5.43 per cent in April while inflation in the protein-rich items such as eggs, meat and fish stood pegged at 13.60 per cent during the month.

In the food basket as a whole, even as inflation in the oils and fats segment was lower at 7.52 per cent, it was surprisingly the cereals category that posted the highest inflation level of 16.65 per cent in April and that too, especially at a time when the country’s granaries are bursting with stocks and fresh procurement is adding to the supplies.

Whether the spurt in cereal prices is owing to higher minimum support prices (MSP), supply bottlenecks or business machinations by private traders is something that the authorities will have to look into.

On a yearly basis, inflation in pulses was pegged at 10.91 per cent while in sugar it was at 10.49 per cent, partly perhaps owing to the partial decontrol of the sweetener.

The slide in overall retail inflation, however, does point to a likely decline in WPI (wholesale price index) inflation, the data for which is expected to be released on Tuesday. Headline inflation based on the WPI in March was pegged at 5.96 per cent which, though a three-year low, was still above the comfort level pegged by the Reserve Bank.

In fact, while easing interest rates by 25 basis points earlier this month, the RBI had pointed to the wide gap between WPI and CPI inflation and highlighted food items as the main reason for the continuing price spiral. “Although headline WPI inflation has eased by March, 2013 to come close to the Reserve Bank's tolerance threshold, it is important to note that food price pressures persist and supply constraints are endemic, which could lead to a generalisation of inflation...,” the apex bank had said.

As for the rural-urban divide, while CPI inflation for rural areas declined to 9.16 per cent during April from 10.33 per cent a month ago, it was marginally higher for urban segment at 9.73 per cent during the month despite easing from 10.38 per cent in March.

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