June retail inflation hits 30-month low

Tags: News
After fears of runaway inflation, it is good news on the price front. Retail inflation fell to a 30-month low of 7.31 per cent in June and wholesale inflation slowed down to a four-month low of 5.43 per cent due to falling prices of food items, including vegetables in spite of difficult monsoon so far this year, government monthly data on Monday said.

WPI inflation dipped in June after a five-month high in May at 6.01 per cent.

Retail CPI inflation fell to 7.31 per cent in June from 8.28 per cent in May. The slowdown in retail inflation was considerably below the Reserve Bank of India target of 8 per cent for January 2015. For this quarter of fiscal 2015, CPI inflation averaged lower at 8.1 per cent as compared to 9.5 per cent last year.

Despite risks from a sub-normal monsoon, “we do not expect food inflation to soar considerably due to proactive measures already taken by the government and strong base effect from last year,” Crisil research said in its statement.

“In the long run, announcements in the budget to boost agriculture and improve the supply chain will help bring down CPI inflation, but lowering and sustaining it around 6 per cent—RBI target for January 2016 will pose a challenge,” it said.

What is noteworthy is that items such as rice, wheat, vegetables and onions, among others, have shown a decline indicating that the steps taken by the government to control the prices of staple kitchen items were working.

“The moderation in inflation together with the rebound in industrial production as per the recently released data, provides a positive signal that the structural bottlenecks afflicting the economy could be gradually showing signs of receding and green shoots of recovery could be around the corner,” CII director general, Chandrajit Banerjee said.

“It is heartening to note that the government is making a serious attempt to address the root cause of spiraling food prices after a set of focused measures undertaken by government,” Ficci president Sidharth Birla said. Icra senior economist Adity Nayar however had a word of caution as delayed monsoon could keep inflation at elevated levels.

“Notwithstanding the moderation in WPI and CPI inflation, caution is warranted on account of the shortfall in precipitation and sowing thus far in the kharif season, which could keep food inflation and inflationary expectation at elevated levels. Additionally, an improvement in demand conditions going forward may prevent a sustained easing of inflationary pressures,” she said.

India Ratings & Research believes that this could be a temporary blip as the delayed monsoon and the consequent spurt in vegetable prices points to the likelihood of inflation aggravating in a pattern similar to that of last year. In 2013 inflation had dipped to 4.6 per cent in May and later gradually increased and peaked at 7.5 per cent in November.

Inflation in primary food articles came in at 8.1 per cent in June 2014 (May 2014: 9.5 per cent) mainly due to a decline in vegetable prices. However the prices of certain vegetables have soared lately and this will likely to exert pressure on inflation in the coming months. Moreover, inflation in many food items such as fruits, milk, egg, meat and fish, condiments and spices and coffee among others, continue to be in double digits. The contribution of fruits and egg as well as meat and fish to the headline inflation was 8.9 per cent and 4.9 per cent respectively in June.

“A glance at the WPI basket of food articles suggests that the sustained high food inflation is a mix of both structural and seasonal factors. While seasonal factors could swing headline inflation in either direction, inflation in other food items has consistently remained high,” India Ratings said.

During 2010-14, the average yearly inflation for rice was 10.1 per cent (June 2014: 10.3 per cent), milk 12.5 per cent (10.8 per cent), eggs, meat & fish 17.2 per cent (10.3 per cent) and pulses 8.5 per cent (1.8 per cent). India Ratings therefore believed inflation in these items would remain elevated unless structural factors, including low productivity and bottlenecks in the agricultural supply chain, are addressed. The union budget last week however has tried addressing some of the structural issues, it added.

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