The latest impressions on inflation at both the wholesale and retail level may have shown a slight moderation, but a closer look at the data reveals a marked increase in all items over the years. last four quarters, suggesting that inflation is spreading.
Inflation rates for items such as minerals, edible oils, oilseeds, dairy products and poultry have gained momentum over the past year, the cascading impact of high fuel prices being clearly visible in segments such as manufactures such as rubber, plastic products, furniture and transport and communications.
The looming concern is that the sharp rise in producer prices is gradually being passed on to the final basket of consumer goods, resulting in consumer price inflation with a certain lag. Adding to this concern is the fact that inflation rates in major economies are also increasing due to rising commodity prices and recovering demand after the pandemic.
The latest impression of inflation for the United States was the highest in 13 years, reaching 5.4 percent in June.
Widespread price increase
Inflation above the RBI comfort level of 6 percent is not just due to rising food prices. Higher inflation in economies such as the United States and rising prices for producer products carry the risk that inflation will spread. This will make it more difficult for the central bank to support growth.
The RBI will have to walk a tightrope to balance growth and inflation amid subdued consumer demand.
The only silver lining: as economies open up, there could be a realignment of consumer spending towards services, which could ease the demand pressure on goods, thus easing some inflationary pressure on goods. goods.
The outlook for wholesale prices, which is an indicator of producer prices, is worrying: they have risen steadily over the past four quarters, reaching the highest level of 11.9% in April-June of the 2011- series. 12. This will most certainly translate into higher retail price inflation. High state and central taxes on fuel as well as high crude oil prices resulted in an increase in the inflation of “crude, oil and natural gas” to 55.5% in April-June, against – 35.6% in April-June 2020 and 9% in January-March of this year. With monsoons being uneven, both spatially and in terms of timing, they are expected to fuel food inflation more.
On the retail sales inflation front, the trend was reflected with the inflation rate for the “transport and communication” segment rising to 11.58% in April-June this year against 6.78% in April-June a year ago. Inflation of fuels and light vehicles rose sharply to 10.83% in April-June, compared to 3.95% a quarter ago and 1.66% in the corresponding period a year ago.
The cascading impact of high fuel prices and commodity prices is also manifested in the inflation rate of manufactured goods, including manufactured food products. Wholesale inflation rates for textile manufacturing rose steadily to 11.7 percent in April-June, down from 7.3 percent a quarter ago and -3.5 percent a year ago , while that of paper and paper products increased from 5.4 to 10.4 percent. percent a quarter ago and -2.1 percent a year ago.
The wholesale inflation rate for furniture manufacturing, which includes wood, iron / steel furniture and plastic accessories, rose to 12.1% in April-June, from 5.5% a year ago. a quarter and 0.9% a year ago. Likewise, the inflation rate for rubber and plastic products, of which crude oil is a key manufacturing ingredient, rose to 13.1% in April-June, from 8.8% a quarter ago. and -1.8 a year ago.
“The increase in inflation is mainly due to the increase in the prices of commodities such as crude oil, minerals and base metals. Because these are producer prices, it will translate into CPI with a certain lag, depending on product to product, ”said Devendra Kumar Pant, Chief Economist, India Ratings.
Among food products at the wholesale level, the inflation rate for pulses – the usual segment of the price increase – declined slightly from 12.4% a year ago to 11.4% in April June. A stronger increase was observed for eggs, meat and fish, for which the inflation rate rose to 10% in April-June, compared to 1.4% a quarter ago and 3% a year ago. a year.
Earlier this month, Chief Economic Adviser Krishnamurthy Subramanian, speaking at the Indian Express’s Idea Exchange, said most of the inflation came from food inflation. “… when we talk about inflation, as an economist I worry about food inflation because almost 50% of CPI inflation comes from food inflation. Also last year, when inflation continued to be above 6% for several months, it was because of the food that was caused by inflation on the supply side, ”he said. he declares.
According to Nomura, headline retail sales inflation is expected to average around 6-6.3% in July-September, followed by moderation to around 5.2-5.5% in October-December due to base effects, before rising to 6.2-6.5% on average. cent in January-March 2022.
The slight moderation in inflation rates seen in June reflects the easing of the price spike due to lockdowns during the second wave of the Covid-19 pandemic, but levels will continue to be high, economists said. The Reserve Bank of India in its monthly bulletin on Thursday also highlighted the impact of supply side constraints on the inflation rate. “An acceleration in inflation is largely due to adverse supply shocks and sector-specific supply-demand mismatches caused by the pandemic. These factors are expected to ease over the year as the supply side measures take effect, ”he said.