Retail inflation rises to 7.59% in January on higher food prices

Retail inflation, calculated on the basis of Consumer Price Index (CPI), inched upwards to 7.59 per cent during January, showed data released by the National Statistics Office (NSO) on Wednesday. This is the highest rate of inflation since May 2014, when it was 8.33 per cent.

This is the second month that inflation remained above the upper limit of 6 per cent set by Reserve Bank of India (RBI). In December 2019, consumer price inflation was pegged at 7.35 per cent. It kept on growing since January 2019, when it was recorded at 1.97 per cent.

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The uptick in inflation figures came on the back of sharp increase in food prices. Food price inflation for January 2020 stood at 13.63 per cent, in comparison to (-) 2.24 per cent recorded in January 2019. However it came down slightly from 14.19 per cent seen in December 2019.

In food basket, vegetable prices showed the highest growth in prices with an inflation rate of 50.19 per cent, followed by pulses and products at 16.71 per cent. Costs for protein products like meat, fish and eggs remained more than 10 per cent during January 2020 when compared to year-ago period.

Meanwhile, prices in housing and health segments grew 4.2 per cent on annual basis, whereas education became costlier by 3.93 per cent during January 2020.

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In light of growing inflation and continuing economic slowdown, RBI's Monetary Policy Committee (MPC) has kept its repo rate unchanged at 5.15 per cent. The central bank follows retail inflation while deciding its policy rates.

"The sharp spike in food inflation has led India's Jan CPI to breach a six-year high of 7.59 per cent compared to 7.35 per cent seen in December. It is the consecutive second month, that CPI has breached the upper band of RBI's inflation target. While, unexpectedly IIP has contracted to 0.3 per cent in December from 1.8 per cent in Nov. Due to higher inflation, RBI has been maintaining a status quo since Dec 2019, if inflation continues to hover above 6 per cent, we don't expect RBI to cut interest rate or change its accommodative policy stance," said Rahul Gupta, Head of Research-Currency, Emkay Global Financial Services.

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