Retail inflation since Dec 2020 higher than govt figures: SBI

A report by SBI Research has claimed that the Consumer Price Index (CPI) computed inflation since December last year is higher than the figures reported by government's Central Statistics Organisation (CSO).

The research desk said that it re-estimated the CPI inflation since April 2020 "by using monthly credit card spends of SBI credit cards of a sufficiently large sample of customers". The exercise was carried out in the backdrop of apprehensions that CSO's inflation numbers for April 2021 were based on "approximation at best", and to account for changing behavioural habits at all levels.

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"In principle, the share of discretionary spending of consumers that had reached as much as 35 per cent of total cards spending in February crashed to 16 per cent in April. Since April, the share of discretionary spends has, however, fluctuated wildly between 15 per cent and 35 per cent indicating consumers are still uncertain when to splurge on items of discretionary consumption, as uncertainty has prevailed in the minds of consumers with different phases of economy opening," the latest SBI Ecowrap report said.

"...since December 2020, our CPI computed inflation is higher than CSO estimate. This has happened as spend on oil in December has crowded out the spending on other discretionary items, like health, grocery and utility services that was the trend in earlier months which is worrisome," it further added.

Following this finding, SBI has pointed out the urgent need for reduction in oil prices through tax rationalisation. Without a fuel price cut, consumers' non discretionary spending will continue to get distorted and crowd out discretionary expenses, as well as impart an upward bias in inflation, the lender stated.

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The Ecowrap report also projected chances of a rate hike by US Federal Reserve on the back of rising commodity prices. While policy circles maintain that the current inflationary pressure on the US economy is transitory in nature, and may not lead to a rate hike, SBI said that it will continue to observe future trends.

"All this will make it difficult for RBI to manage the conflicting targets of inflation, exchange rate and adequate liquidity amidst weak growth," it said.

The SBI Ecowrap report said that although CPI inflation in April 2021has eased, courtesy lower food prices, core inflation remains "stubbornly sticky" at close to 6 per cent for the past nine months to March 2021, and only moderated slightly to 5.43 per cent in April 2021 from 6 per cent in March 2021.

SBI attributed higher urban inflation as compared to rural inflation to higher fuel and light consumption in urban areas. "Meanwhile, core inflation in rural areas has been more than that in urban areas since June 2020, except for March 21. The gap between rural core inflation and urban core has increased in April 2021 to more than 170 bps," the lender said.

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