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Inflation decoded

6 5 0
19.01.2020

The inflation code, decoded

The Consumer Price Index (CPI) inflation measuring the average rise in prices for basket of goods most frequently consumed by households in India, peaked to 7.35 per cent in December 2019 from 5.54 per cent in November. This was well above the market expectations of around 6.2 per cent.

Expensive tuber

This effect, sourced from galloping food inflation, can largely be explained by a consistent push seen by the rise in cost of food and beverages (12.16 per cent), within which vegetables (60.5 per cent) and pulses (15.44 per cent) saw the highest jump. Cereals (4.36 per cent) and Milk (4.22 per cent) too witnessed a sustained increase among other components. The rise in cost of vegetables (i.e. over 60 per cent) can largely be explained by the price-behaviour of onions, which is surging to almost Rs 200 per kg in cities. Higher onion prices could have been perceived with more optimism had they led to an increase in farmers' incomes. Onion prices have seasonally witnessed a greater degree of volatility due to supply-side factors and role of certain policy measures (like MSP ratesetting).

A high CPI inflation rate is bad news and, at this stage, it is even more puzzling. Components of CPI inflation are peaking at a time when average demand has been dismally low, real........

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