Retail inflation at 6-year high of 7.61% in October

NEW DELHI: Retail inflation jumped to a six-year high of 7.61% in October from a year ago, compared to an increase of 7.27% in September, a reading that is well above the Reserve Bank of India’s (RBI) acceptable limit of 4% (+/-2) for the seventh straight month, data released on Thursday by the ministry of statistics showed.
The country’s consumer-price index (CPI) — a measure of what households pay for everyday items including fuel, clothing and electricity — is now at its highest level since May 2014, fuelled by persistent high food prices. Combined (rural and urban) food price inflation rose 11.07% in October on the back of costlier onions, potatoes and other vegetables, up from 9.73% in September, the data showed.
High food costs affect poorer households more than affluent ones. The poor tend to spend a higher proportion of their monthly budgets on food due to an economic phenomenon noted by Engel’s Law, wherein as household income rises, the percentage of income spent on food declines, relative to other expenditure.
Vegetable prices surged 22.51% in October after increasing 20.73% in September, the data showed. Prices of meat and fish increased 18.7% in October against a 17.6% rise in the previous month, while pulses rose 18.34% in October against a 14.67% rise in September.
The upsurge in vegetable prices was driven by damage to stored and freshly harvested onion stocks due to heavy rains last month in states such as Maharashtra and Karnataka. Higher onion exports this year, of over 2 million tonne till August, also exacerbated domestic shortage. To curb prices, the government had on September 14 banned export of onions. To help quicken imports, the government on October 21 relaxed fumigation norms for imported onions.
Among major categories that make up the CPI, fuel and light inflation jumped 2.28%, compared to a 2.87% rise in September, while health costs climbed 5.22%, against a 4.9% surge in the previous month. Household goods and services prices recorded a 2.83% growth, marginally down from September’s 2.9%. Elevated retail prices do not just affect consumers but also shrink RBI’s room to lower interest rates further to boost growth at a time when the pandemic has battered key sectors.
October’s retail inflation should “make it clear to policymakers that food inflation has persisted and supply-side constraints are to blame,” Abhishek Agrawal, an analyst with Comtrade, said.

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