​Last mile woes: On inflation data and the challenges Politics & News

The latest retail inflation data from the National Statistical Office yet again highlights the challenge in achieving durable price stability. Provisional estimates for year-on-year price gains in August show the headline rate based on the Consumer Price Index (CPI) quickened marginally to 3.65%, from July’s 3.60%, as a sharp rebound in vegetable inflation led to a wider acceleration in overall food price gains. Price gains in vegetables — the third-largest constituent of the Consumer Food Price Index — surged by more than 380 basis points last month to 10.7%, spurring food price inflation to 5.66%. Among vegetables, year-on-year inflation in the most widely consumed potato and onion still remained in the high double digits for a sixth and 13th month at 64% and 54%, respectively, a moderation from July’s levels notwithstanding. Other vegetables including carrot, palak and brinjal experienced a surge in price gains with all three posting double-digit inflation. Also, disinflation in the prices of pulses and cereals remained slow, with year-on-year price gains in the former still in the double digits for a 15th straight month at 13.6%, while the latter logged an inflation reading of 7.3%. Disconcertingly, food inflation in the rural areas rebounded to exceed 6%, and this at a time when stuttering private consumption is trying to regain momentum in the economically crucial agrarian hinterland. As an external member of the Monetary Policy Committee Shashanka Bhide noted in his comments at the RBI’s policy review meeting last month, “high food inflation would therefore hit growth adversely as it affects consumption”.

A durable disinflation to the RBI’s medium-term monetary policy goal of 4% headline retail inflation also faces other challenges, a key element being a resurgence in core inflation. The price gains measure, which strips out the more volatile food and fuel components, inched up to 3.38% after having snapped a 17-month decelerating streak in July. Based on responses from goods manufacturers polled for the monthly HSBC India Manufacturing PMI survey, HSBC observed this month that there was a “marked increase in prices charged for goods in August” with the rate of output-charge inflation the second-fastest in close to 11 years. Add to this the spatial and temporal volatility of the monsoon, and the outlook for price stability becomes even more muddied. RBI Governor Shaktikanta Das on Friday said that the last mile of disinflation was proving to be “challenging”. With policymakers still having to traverse a fair distance to ensure inflation does not undermine broader economic momentum, he reassuringly acknowledged that authorities “cannot afford to look the other way”.