Oh bother, food prices on the move again!

Is this a blip or something more? India’s primary inflation data –includes food and non-food articles or basic inputs- shows inflation for the week ended July 30 at 12.22%, marking a sharp upturn from 10.99% in the previous week.

What’s worrying is that this has been caused by food inflation, and not due to fuel or some other commodity in the non-food basket. The past few months have seen food inflation behave itself, as prices of cereals calmed down and vegetable prices too cooled down from their highs, though they are still expensive relative to last year. A sharp jump in the prices of milk, vegetables, fruits, and eggs & meat seems to have hit food prices in the latest data.

As far as non-food inflation is concerned, that remains where it was, in the 15%-16% bracket. Fuel prices are the key component here.

Note that this data release is subsequent to the RBI’s monetary policy shocker when it hiked benchmark rates by about 50 basis points. If inflation does not show a more salutary trend before the next review, the central bank will have little choice but to keep hiking rates.

That’s not a pleasant prospect either for consumer demand or the stock markets. If these indices keep on increasing week-on-week, then inflation may go up even further from current levels. There is already a low base effect in the previous year, which will keep inflation up.

To illustrate, food inflation indices moved from 177-196 levels between Aug-December, and at present the index is already 195. If it remains stable, food inflation will fall by the year-end, otherwise it will flare up. You can read the official press release here.

India’s Primary Inflation – (Year on Year Growth – %),
(source: The Economic Advisor, Ministry of Commerce and Industry)

India - Primary Inflation

Comments are closed.