Retail inflation in India touched a 16-month low as vegetable prices continued to fall.
The Consumer Price Index-based inflation stood at 4.06% in January 2021 compared with 4.59% in December, according to data released by the Ministry of Statistics and Programme Implementation. A Bloomberg poll of 35 economists had pegged the retail inflation at 4.4%.
Inflation in food and beverages eased to 2.67% in January from 3.87% in the preceding month. This was led by a 15.84% drop in vegetable prices against a decline of 10.41% in December.
Core inflation was unchanged at close to 5.33% in January.
At current levels, retail inflation has stayed within the Monetary Policy Committee’s target range of 4(+/-2)% for the second straight month.
The lower than expected retail inflation may have not captured the rise in cereal prices seen in January, said Sreejith Balasubramanian, economist – fund management at IDFC AMC. The decline in headline inflation has been mainly driven by the strong deflation in vegetables and fall in prices of meat, fish and eggs, he said.
“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,” Balasubramanian said.
- Clothing and footwear inflation was at 3.82% compared with 3.49% in December.
- Housing inflation stood at 3.25% against 3.21% in the preceding month.
- Fuel and light inflation stood at 3.87% compared with 2.99% in December.
- Household goods and services prices rose 2.80% compared with an increase of 2.95% in December.
- Health inflation stood at 6.02% against 5.98%.
- Transport and communication inflation rose 9.32% against a rise of 9.32% in December.
Across-The-Board Decline In Food & Beverage Prices
The decline in the food prices was broad-based including in major items such as cereals, meat, milk, oils and pulses. However, the decline was most prominent in vegetables.
- Potato prices in January 2021 fell 9.61% over a year ago compared to a rise of 43.47% in December 2020.
- Onion prices continued to fall, dropping 36.16% in January after a decline of 46.48% in the previous month.
- Tomato prices dropped 3.65% in January after a rise of 15.95% in December.
Led by a sustained decline in food inflation, which is at a 20-month low, CPI inflation declined in January 2021, said Sunil Kumar Sinha, principal economist at India Ratings. A strong base effect in vegetable prices will keep food inflation low over the next six to nine months, even though a spike in vegetable prices during the summer months can’t be ruled out, he said.
“In view of the growth-inflation dynamics and the guidance given by the RBI, it will continue with its accommodative stance and keep the policy rates in a pause mode over the next six to nine months,” Sinha said.