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Inflation Rising, Blame Potatoes, Chillies & Tomatoes

India

Inflation Rising, Blame Potatoes, Chillies & Tomatoes

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Prices and thus inflation are rising again across the country. A report by State Bank of India Research says it’s vegetables alone that are to blame, unlike in the past where other factors also drove up inflation.

 
Prices and thus inflation are rising again across the country.

 

But a just released report by State Bank of India Research says it’s vegetables alone that are to blame, unlike in the past where other factors also drove up inflation.

 

India’s Consumer Price Inflation or CPI is up to 5.77% against 4.83% in March 2016, a jump of 94 basis points in just three months. A not so healthy sign given the central bank’s – the Reserve Bank of India – focus on targeting inflation.

 

Peel away one layer and it gets interesting. In the same three-month period from March to June, the weighted contribution of vegetables in the overall CPI inflation number rocketed from 1% in March to 17% in June.

 

Within vegetables, specific items like potatoes, green chillies and tomatoes contributed 64% of such increase since March 2016.

 

Now all of this, the SBI report says, is not as bad as it was in 2013-14 when the contribution of vegetables rose from 7% in March 2013 to 38% in November 2013. But it might be worth recalling that India’s parliamentary elections that overthrew the incumbent Government came in May 2014.

 

The good news, if any, is that the non-food part of inflation or core CPI has held steady at around 4.5% from January 2015 to June 2016. While the weighted contribution of core CPI has stood at 36% in this period.

 

Price of pulses – another headache for the Government of the day – continues to slide, now at 26.8% from a high of 46% in Nov 2015. Service CPI on the other hand has declined 3.1% in the 12-month period ended June 2016.

 

“This has been made possible by significant disinflationary impetus in components like medical, education and even clothing,” says SBI.

 

Looking ahead, consumer inflation numbers are likely to stay at current levels before starting to decelerate from August, says SBI, acknowledging that the RBI’s 5% target for January 2017 looks a little challenging now.

 

 

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