Retail inflation rose sharply, close to a six-year high, after there were no more rooms for the RBI to cut policy rates. With a 7.35% increase in December 2019, retail inflation surpassed the central bank’s comfort range. The increase was on account of vegetable and food price escalation. Food makes up 46% of retail inflation. This comes as a major drawback for the Indian population which is already seeing an increase in the price of food items, especially onions.
The vegetable inflation surged past a six-year high and, in the pulses segment, inflation rose to an over three-year high. These are reported key reasons which drove the Consumer Price Index (CPI)-based inflation.
The National Statistical Office (NSO) released data which revealed that in December 2019, vegetable items recorded the highest inflation rate with 60.5% rise, after that pulses and products at 15.44%, meat products at 9.57% and egg at 8.79%.
According to the data, urban CPI inflation rose to 7.5% in December 2019 while it was 5.8% in November 2019. Rural CPI inflation rose to 7.3%, crossing five years high.
Core CPI inflation, excluding food and oil products, rose from 3.5% in November 2019 to 3.75% in December 2019.
India Ratings and Research (Ind-Ra) said that the spike in onion and tomato prices adds to the consumers' woes and it accelerated after retail inflation since February 2019.
When the NDA government took to the office in 2014, retail inflation was witnessed at 7.39% in July 2014, which was the highest at the time.
Madan Sabnavis, Chief Economist of CARE Ratings, moderation in prices of onions and other vegetables could support overall inflation moderation.
Statistically, the price hike will affect both the poor and the middle class. The country is witnessing an economic slowdown for the past few months and this has affected the domestic consumption, foreign consumption or exports, private investment and government spending in the country.