Higher food prices increase India’s April retail inflation

Higher food prices accelerated India’s April retail inflation to 2.92 per cent from 2.86 per cent in March, official data showed on Monday. However, on a year-on-year (YoY) basis, the Consumer Price Index (CPI) in April 2019 was lower than the corresponding period of last year when retail inflation stood at 4.58 per cent.

According to data furnished by the Central Statistics Office (CSO), the Consumer Food Price Index (CFPI) inflated to 1.10 per cent during the month under review from an expansion of 0.30 per cent in March 2019.

A Reuters poll had predicted an April retail inflation rate of 2.97%.

The inflation rate has fallen sharply from a peak of more than 12% in November 2013, which Prime Minister Narendra Modi has touted while seeking a second term in general elections that began on April 11. Votes will be counted on May 23.

While low inflation is helping the economy, declining farm incomes and record high unemployment have hit consumer demand and economic growth.

The economy likely grew an annual 6.5% in January-March, according to government estimates, slower than five-quarter low growth of 6.6% in October-December.

This year, the monetary policy committee of Reserve Bank of India (RBI) has cut its benchmark repo rate twice, reducing it to 6.0% and many economists expect another 25 basis point trim on June 6.

“A significant deceleration in inflation for clothing and footwear and miscellaneous components has reduced core inflation from 5.06% in March to 4.57% in April. This reflects severe demand slowdown,” said Rupa Rege Nitsure, chief economist at L&T Financial Holdings.

She said the contraction of industrial output has opened up space for monetary easing in June.

Figures released on Friday showed annual industrial output fell 0.1% in March compared with a 0.1% rise the previous month.

The central bank has lowered its retail inflation forecast to 3.8% by January-March 2020, but warned it could be higher if food and fuel prices rise abruptly, or if the fiscal deficit overshoots targets.

Economists said inflation could pick up in coming months as manufacturers’ spare capacity was at its tightest in over seven years and any shortfall in June-September rains could trigger a spike in food prices.

Retail food prices increased 1.10% in April from a year earlier, up from 0.30% in March.

Core consumer inflation, which strips out food and fuel prices, was estimated at 4.53%-4.57% in April, lower than March’s 5.02%-5.08%, according to two analysts after seeing the inflation figures released on Monday.

Retail fuel prices could also increase after the elections as state-run oil companies have largely held back from passing on the rise in global crude prices to consumers during the campaign. India meets 80 percent of its fuel needs through imports.

Prices of crude oil, India’s biggest import item, have gone up over 30% this year to around $71 a barrel. Retail petrol and diesel prices in Delhi this year have gone up about 6%.

Meanwhile, falling for the ninth successive session on Monday, the key equity indices, Sensex and Nifty, declined over 1 per cent following massive volatility during the session.

The BSE Sensex ferried over 580 points between the days highs and lows before closing 372.17 points lower at 37,090.82.

The Nifty lost over 1 per cent or 130 points to drop to 11,148.20 during the day’s trade.

 The broader markets saw an even more intense decline.

The Nify Mid-cap and Small-cap index declined over 2 per cent.

“Consolidation extended in the market as rising trade tensions and contraction in domestic industrial production dented investor sentiment.

Additionally, exodus of foreign funds and rising oil prices impacted the currency movement,” said Vinod Nair, Head of Research, Geojit Financial Services.

Global markets are nervous about the fresh US-China spat over trade. On Friday, the US more than doubled tariffs on $200 billion worth of Chinese products from 10 per cent to 25 per cent, which elicited an immediate response from China threatening “necessary counter-measures”.

“Global economic situation will be a determining factor for the market while investors remain focused on the upcoming CPI inflation data to get cues on the interest rate trajectory. Currently, the market is expecting reduction in interest rate in the medium-term,” Nair added.

Agencies