With prices rising 17.14% in May, pulses have now completed a year of over 10% inflation. File
| Photo Credit: The Hindu

India’s consumer price inflation eased a tad from 4.83% in April to a one-year low of 4.75% in May, but food price rise remained unchanged at 8.7%, with urban households facing a sharper 8.83% spike in food inflation. Retail inflation stood at 4.31% in May 2023, with food prices rising less than 3%.

May was the fourth successive month with food inflation of over 8.5%, though it cooled fractionally for rural consumers from 8.75% in April to 8.62%. On a month-on-month basis, the Consumer Price Index (CPI) was up 0.5% in May, while the food price index had risen 0.73% from April’s levels. The sequential rise in food prices was 0.7% for rural consumers and 0.9% for their urban counterparts.

Also Read | Fleeting relief: On slide in retail inflation 

The gap between urban and rural consumers’ inflation trends was sharp for the third consecutive month, with rural households seeing a 5.3% rise in prices in May. For urban consumers, the retail inflation pace was 4.15%, just fractionally higher than 4.14% in March and 4.11% in April.

While retail inflation has now been below 6% since September 2023, it is still far from the central bank’s 4% target. The Reserve Bank of India (RBI) expects retail inflation to average 4.5% this year and has projected an average of 4.9% for the April to June quarter. With April and May inflation coming in slightly below that, it is likely that price rise may resurge to over 5% this month.

Vegetable prices

Barring spices, where the inflation rate cooled to 4.3%, the lowest level in at least two years, price pressures persisted for most food items. Vegetable prices rose 27.3% in May, while the inflation rate accelerated for cereals (8.7%), eggs (7.6%), fruits (6.7%) as well as pulses. With prices rising 17.14% in May, pulses have now completed a year of over 10% inflation.

Meat and fish prices were up 7.3% in May, easing a tad from 8.2% in April. Edible oil prices were down 6.7% from last year compared with a 9.4% dip in April, making it the mildest decline in prices in at least 14 months.

Terming the rising inflation in key food items such as cereals and pulses, and the rigidity in vegetable prices as worrying, Crisil principal economist Dipti Deshpande said the progress of the southwest monsoon would influence the food inflation trajectory over the next few months and there could be softening this month.

Also Read : Extreme weather may pose risk to inflation, says RBI Bulletin

“Non-food inflation continues to offer respite, printing at a record low of 2.3%. Much of this was due to core sliding to 3%, also a record,” she noted.

“A favourable base effect is expected to persist till July 2024, helping absorb potential upward risks to price pressures to a certain extent. If food inflation moderates, we expect the RBI to cut the policy interest rate by a shallow 50 basis points in two tranches in the second half of the fiscal year,” said CareEdge Ratings’ chief economist Rajani Sinha. One basis point equals 0.01 per cent.

As per the latest All India Household Consumption Expenditure Survey, the average monthly per capita consumption expenditure in Indian households rose by 33.5% since 2011-12 in urban households to ₹3,510, with rural India’s MPCE seeing a 40.42% increase over the same period to hit ₹2,008. File
| Photo Credit: The Hindu

For the first time in about 11 years, the government on February 24 released the broad findings of the All India Household Consumption Expenditure Survey carried out between August 2022 and July 2023. The data will play a key role in reviewing critical economic indicators, including the Gross Domestic Product (GDP), poverty levels, and the Consumer Price Inflation (CPI).

The Household Consumption Expenditure Survey (HCES) is usually conducted by the National Statistical Office (NSO) every five years, but the findings of the last Survey, conducted in 2017-18 soon after the demonetisation of high-value currency notes and the implementation of the Goods and Services Tax (GST), were never released after the government cited “data quality” issues.

As per the latest Survey, the average monthly per capita consumption expenditure (MPCE) in Indian households rose by 33.5% since 2011-12 in urban households to ₹3,510, with rural India’s MPCE seeing a 40.42% increase over the same period to hit ₹2,008.

Importantly, the numbers show that the proportion of spending on food has dropped to 46.4% for rural households from 52.9% in 2011-12, while their urban peers spent just 39.2% of their overall monthly outgoes on food compared with 42.6% incurred 11 years earlier. This reduction could translate into a lower weightage for food prices in the country’s retail inflation calculations.

The MPCE numbers cited above do not take into account the imputed values of items received free of cost by individuals through various social welfare programmes such as the PM Garib Kalyan Ann Yojana (PMGKAY) or State-run schemes, which were calculated separately, while including a few non-food items received through such schemes, including computers, mobile phones, bicycles, and clothing.

The average MPCE, at 2011-12 prices, was a tad higher when these items were included while excluding free education and healthcare sops — at ₹2,054 for rural households, and ₹3,544 for urban homes.

The Statistics and Programme Implementation Ministry released a factsheet on the summary of the Survey findings, and said a detailed report on the survey will be brought out subsequently. The estimates of the MPCE are based on data collected from 2,61,746 households, of which 1,55,014 were in rural areas, spread over all States and Union Territories, the Ministry said.

“The bottom 5% of India’s rural population, ranked by MPCE, has an average MPCE of ₹1,373 while it is ₹2,001 for the same category of population in the urban areas. The top 5% of India’s rural and urban population, ranked by MPCE, has an average MPCE of ₹10,501 and ₹20,824, respectively,” according to the factsheet.

Among the States, the MPCE is the highest in Sikkim for both rural (₹7,731) and urban areas (₹12,105). It is the lowest in Chhattisgarh, where it was ₹2,466 for rural households and ₹4,483 for urban household members.

A vendor weighs tomatoes for a customer at a vegetable market in Ahmedabad on July 25, 2023.
| Photo Credit: Reuters

India’s retail inflation may have spiked close to or over the 6% upper tolerance threshold of the Reserve Bank of India (RBI) in July, owing to a broad-based uptick in food prices, and could remain sticky in coming months, economists reckon.

This could compel the central bank to stay hawkish and possibly raise its inflation projections for the ongoing July to September quarter (Q2) as well as the full year 2023-24 at its monetary policy review this week, and delay hopes of an interest rate cut.

Also read |Govt stays guarded over prices even as core inflation softens

The RBI’s Monetary Policy Committee (MPC) will meet over three days from August 8 and convey its decisions on Thursday, August 10, while the National Statistical Office will release July’s retail inflation numbers on August 14. The MPC has projected average retail inflation of 5.2% in Q2 and 5.1% for the full year.

Having stayed below the 6% mark for four months in a row, consumer price inflation (CPI) had, however, risen to a three-month high of 4.8% in June owing to a spurt in food prices, particularly, cereals, pulses, milk and tomato prices. This trend firmed up further last month, with tomato prices up almost 176% from a year ago, and tur, rice, salt, milk and pulses rising over 10%, a Bank of Baroda (BOB) report noted.

“We expect CPI to settle around 5.8%. RBI in its coming policy would be continuing with its hawkish pause and might revise its inflation projection for Q2 upwards,” said Dipanwita Mazumdar, economist at Bank of Baroda.

Core inflation may ease

State Bank of India group chief economic adviser Soumya Kanti Ghosh is not as sanguine and expects inflation to hit 6.7% in July, thanks to food inflation, though he expects non-food, non-energy inflation (core inflation) to ease to 5% from 5.1% in June.

Rice prices have spiked the most in the northeast and southern regions, rising 32% and 17%, respectively, with the latter paying the highest price in the country at ₹53.7 per kilogram. Moreover, extreme flooding as well as relatively poor rainfall in some States have affected rice sowing, with the sown area at just 59% of normal area as of July 28. India’s recent non-basmati rice export ban has wreaked havoc for over 140 countries which depend on its supplies, but may bring some relief to consumers, especially in the south, Mr. Ghosh said.

Despite easing core inflation, Nomura economists Sonal Varma and Aurodeep Nandi said the food inflation spike, especially during July-September, would likely result in higher overall inflation this year. “We expect higher food inflation to push headline inflation to 6%-6.5% in July and August, before settling in a 5-6% range over the rest of the fiscal year,” they said.

Mr. Ghosh cautioned that edible oils, whose prices have been subdued in recent months compared to extreme spikes last year after the Russia-Ukraine conflict, could pose fresh pressures. While India has substituted sunflower oil imports from Ukraine with palm oil imports from Malaysia and Indonesia, these could be hit as their crop is likely to be affected by El Niño conditions, he added.