Vegetable prices see 60.5% jump; retail inflation breaches MPC target band

Andrew Cummings
January 13, 2020

As the table below shows, the "vegetables" inflation rate surged to 60.5% in December 2019 as against 35.99% in November 2019. The retail inflation stood at 2.11 per cent in December 2018. The Consumer Food Price Inflation rose to 14.12% in December from 10.01% in November. Prices of eggs increased by 8.7%, and prices of food and beverages overall increased by 12.16%.

Retail inflation based on consumer price index (CPI) accelerated to 7.35 per cent in December previous year as against 5.54 per cent in November mainly on account of rising vegetable prices, government data showed on Monday.

This is the third straight month when the retail inflation figure exceeded the Reserve Bank of India's (RBI's) medium-term target of 4 per cent. The RBI is mandated to keep inflation between 2-6%, with a margin of 2% on either side.

The inflation in "pulses and products" was recorded at 15.44 per cent, while in case of "meat and fish" it was almost 10 per cent.

The RBI had also lowered its forecast for economic growth to 5% while announcing its bi-monthly monetary policy in December.

India's GDP or gross domestic product expanded at more than six-year low rate of 4.5 per cent in the quarter ended September. This is the first time since July 2016, when the the central bank's monetary policy committee (MPC) changed its stance and undertook an inflation targeting approach that the target has been breached.

Commenting on the latest number, industry body PHD Chamber said the rise in inflation rate is not sustainable and the average inflation should remain at around 5.5 per cent for the current financial year. The rising vegetable prices can also be seen as a key reason behind the jump in the retail inflation. Notwithstanding the marginal rise in Core CPI in Dec19, we expect it to continue to stay soft (3.7% y/y in Dec19 vs. 5.7% in Dec18) given benign demand conditions.

Prices of meat and fish increased by 9.5% as against 9.38% in November.

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