Consumer Affairs dept may take out vegetable price list every month: SBI Ecowrap

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Though India’s retail inflation eased marginally to four-month low of 5.09% in February, compared to 5.10% in January, due to the deceleration in all categories except food, the food inflation persisted. Food inflation increased to 7.76% from the previous month’s 7.58%. Within food inflation, protein items (meat, egg) inflation increased exorbitantly (in the range of 400-500 bps) in February month as compared to Jan month. Vegetable prices also increased m-o-m by 300 bps to 30.2%, the latest SBI Ecowrap report noted. 

With moderate fuel prices, inflation is currently being driven by food price dynamics. “Looking ahead evolving food prices will determine domestic inflation. CPI inflation is expected to remain slightly above 5.0% till May and declining thereafter to 3% in July. Inflation is expected to stay below 5% beginning November till the end of FY25. Spatial heatmap shows that the largest weighted contribution to the current reading of CPI came from Maharashtra and Uttar Pradesh,” the report said.

Earlier in the evening, NSO data showed that India’s retail inflation was 5.09% in February 2024, compared to 5.1% in January. Food inflation, which accounts for nearly half of the overall consumer price basket, was 8.66%, slightly higher than 8.3% in January. Inflation in the food and beverages basket also rose to 7.76% last month. Amongst categories, vegetable inflation came in the highest at 30.25%.  

In February, Odisha had the highest retail inflation rate at 7.55%, while Delhi had the lowest at 2.42%.

“Recent release of CES (2022-23) may have an impact on food CPI and subsequently on overall CPI as the weights of major food items has been revised from 47.8% in 2011-12 to 42.8% in 2022-23 at all India level. There is an urgent need to rationalise the weights under CPI,” the report noted.

Since CPI is basis for RBI’s monetary policy decisions it should be appropriately calculated, the SBI noted in its report. By substituting existing weights with new weights, the new headline CPI is lower than the old headline CPI in the recent period by around 40 bps, it added.

Despite retail inflation being within the mandated band of 2%-6% prescribed by the central bank, uncertainties in food prices have worried policymakers. 

“At present, ICRA estimates the headline CPI inflation to dip to sub-5.0% in March 2024 from 5.1% in February 2024, led by a dip in the fuel and light (amid the cut in LPG prices) as well as the food inflation prints, even though the latter is likely to remain elevated above the 7% mark,” said Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA.

“Headline inflation in February 2024 stands at 5.09%, slightly below market expectations of 5% and lower than January’s 5.10%. The major contributor was food inflation, registering at 8.66% against 8.3% in January. While the RBI has highlighted the risk of food inflation spilling over into broader inflation, we anticipate the regulator to maintain a cautious stance. However, softening of core inflation should provide relief.  We think RBI would rather continue with stability priority and continue maintaining 4% inflation target as sacrosanct, and hence we do not see premature easing from RBI,” said Akhil Mittal, Senior Fund Manager-Fixed Income, Tata Asset Management.

RBI Governor Shaktikanta Das highlighted the impact of food price fluctuations on inflation, stating that while food prices remained volatile, fuel prices experienced deflation, and core inflation (excluding food and fuel) hit a four-year low of 3.8 per cent in December.

“Food price inflation continued to impart considerable volatility to the inflation trajectory. In contrast, the deflation in CPI fuel deepened and core inflation (CPI inflation excluding food and fuel) moderated to a four-year low of 3.8 per cent in December,” Das had said earlier while announcing the policy decisions.

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