Interim relief: On retail inflation’s fall to a 11-month low

Headline inflation’s welcome moderation below 6% in November may not sustain yet 

December 14, 2022 12:10 am | Updated 11:59 am IST

After a seemingly interminable 10-month streak of Indian consumers facing runaway price rise of over 6%, retail inflation appeared to have relented a bit in November to 5.88%. This may only be slightly below the 6% upper tolerance threshold for the Reserve Bank of India (RBI), but constitutes some relief. Since April 2022, when retail prices surged at a near-eight year high rate of 7.8%, five of the first eight months of 2022-23 year registered 7%-plus inflation. Sequentially, November’s 0.9 percentage point drop from October’s 6.77% mark is the sharpest moderation in this period, with a similar correction in rural inflation’s trajectory though it remains high at 6.1%. The Finance Ministry termed this a ‘drastic decline’ mainly attributable to a sharp decrease in food price inflation brought about by government measures. Consumer food price inflation cooled to an 11-month low of 4.67% in November from over 7% in October. Vegetable prices accounted for most of the decline in food inflation — moving from 7.8% inflation in October to deflation of 8.1% last month, and plummeting 8.3% month-on-month.

Vegetable prices may remain benign for a bit, but are volatile by nature — excluding them, retail inflation would have accelerated to 7% in November, some reckon. There has been little respite on other household budget items, including essential kitchen supplies such as cereals, milk and spices, whose inflation rates accelerated to 13%, 8.2% and 19.5%, respectively. The Government expects steps to check cereals and pulses prices to be ‘felt more significantly’ in coming months. Fuel inflation rebounded to 10.6%, with kerosene and coal costs rising month-on-month. Core inflation, which excludes food and energy prices and whose ‘stickiness’ RBI Governor Shaktikanta Das warned of in the latest monetary policy review, inched up too. Price rise in transport and communication, health, and household goods and services accelerated. About 56% of items in the Consumer Price Index basket clocked over 6% inflation in November, a higher proportion than September and October. While asserting the worst is behind us, the RBI estimates inflation to average 6.6% in this quarter, so December could yet see a bounce back beyond 7%. Inflation has to be sustainably reined in below 6% and shepherded to the preferred 4% target, but with industrial output tripping as well, the central bank may have limited room for aggressive rate hikes, and fiscal policy may have to do the heavy lifting now. That petrol pump prices remain frozen in India means no gains will accrue to consumers from the dip in global crude oil prices, unless the daily price reset regime for petroleum products is allowed to function again. The Government could fix that for starters.

To read this editorial in Tamil, click here.

To read this editorial in Hindi, click here.

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