newest retail inflation data A grim reminder from the Office for National Statistics that accelerating price gains still remain the biggest challenge for policymakers as they try to steer Asia’s third-largest economy to a more sustainable recovery from the pandemic-induced slowdown. Huh. Inflation based on the Consumer Price Index (CPI) rose to 7% in August from 6.7% in July, as the pace of gains in food prices, as measured by the Consumer Food Price Index, increased by 93 basis points to 7.62. %, up from 6.69% in July. And rural consumers bore a disproportionately higher burden: with month-on-month changes in both food prices and overall inflation, rates are significantly higher at 0.88% and 0.57%, respectively, compared to urban inflation’s rates of 0.50% and 0.46%. Of particular concern is that inflation in the prices of cereals – the staple grain in every household – rose to 9.57% from the previous month’s rate of 6.9%. Month-to-month pace was a disappointing 2.4%. With kharif sowing of rice this year slashed last year’s acreage and unequal distribution of rainfall, worsening the production picture of the crop, the outlook for inflation in this ‘heavyweight’ food category is far from reassuring, by the Centre. Recently tariffs and other restrictions on exports have been imposed. In spite of non-basmati rice. In fact, eight of the 12 foods that combine to constitute the CPI’s food and beverage category were vegetables (13.2% year-over-year and 2.5% month-on-month) and dairy (6.39%). A gradual price increase was observed with and 0.9%, respectively) are two other important foods that contributed to rapid inflation.
The finance ministry insisted that growth in headline inflation was “moderate”, even as it tried to downplay the importance of food price pressures by terming food and fuel prices a “transient component”. It also pointed to the government’s steps to reduce prices, which may help contain inflation in the coming weeks. And it cited oil and fat and pulses as the two commodities where prices started coming down in response to the Centre’s move. However, prices of pulses and products rose 1.7% month-on-month, with gradual inflationary momentum only in spices, cereals and vegetables. Services categories including housing, health, education, entertainment and personal care also saw a gradual increase in prices as demand for these services gradually improved. The challenge going forward will be for providers to tread carefully so as not to further curtail consumption by sharply increasing prices. Policy makers should heed the quote of a former RBI governor who does not tire of reiterating that ‘building price pressures is the best anti-poverty program’ as the poor have ‘no hedge against inflation’.