Food price rise takes India's inflation to 5-year high: What it means

Onion prices, vegetable prices, pulses, retail inflation, price rise, RBI, Reserve Bank of India — Representational image

Driven by rise in the prices of vegetables and pulses, the Consumer Price Inflation index (CPI) rose to about five-and-half year high of 7.35% in December 2019, crossing the upper comfort limit of Reserve Bank of India (RBI). The latest retail inflation figures are at highest after July 2014 and crossed 6% mark for the first time after 2016 in the Modi regime.

Vegetables, pulses price key contributor to food price index leading to retail inflation to a 5-year high record

This is for the first time after July 2014 when overall retail inflation has reached to 7.4% and also the first time after 2016 when it is above 6%.
Food price index rose to 14.1% in the last month becoming a major contributor to the retail inflation mainly due to the soaring prices of onions and pulses, meat, fish, others.
The inflation in 'pulses and products' was recorded at 15.44%, while in case of 'meat and fish' it was nearly 10%.
Though the food price index contributed majorly to inflation, it is mainly due to the rise in the prices of onions and pulses.

Inflation on a 5-year high: What it means

With retail inflation on a 5-year high level, it has diminished the chances of the RBI cutting interest rate at its next monetary policy review due on February 6.
The CPI inflation has breached RBI Monetary Policy Committee (MPC) target of 6% for the first time in the last 41 months.
Inflation in rural areas was recorded at 7.3% while in Urban places it was 7.5%, therefore the overall inflation in 2019 stood at 7.4%.
However, in November, the retail inflation stood at 5.5%, slightly below then the upper limit of RBI's comfort level.
However, economists believe that inflation may come down in the coming months once the onion prices reach a comfort zone.
The overall retail inflation based on Consumer Price Index (CPI) was 2.11% in December 2018 and 5.54% in November 2019.
As per the National Statistical Office (NSO), the overall food inflation rose to 14.12% in December as against (-) 2.65% in the same month of 2018. The food inflation was 10.01% in November 2019.
The previous high in retail inflation was witnessed at 7.39% in July 2014, the year Narendra Modi-led government assumed office for the first term.
The central government has mandated the Reserve Bank of India to keep inflation in the range of 4% with a margin of 2% on the either side.
The RBI, which mainly factors in the CPI-based inflation, is scheduled to announce its next bi-monthly monetary policy on February 6.
In its December policy, the central bank, which has been reducing rates, had kept the repo rate unchanged citing inflationary concerns.
Even though analysts expect the headline CPI inflation to correct sharply in January 2020 and further in February 2020, from the unpalatably high 7.35% recorded in December 2019, it is expected to remain sticky above 4.3% in the next few quarters.
Commenting on the latest number, industry body PHD Chamber said the rise in inflation rate is not sustainable and the average inflation should remain at around 5.5% for the current financial year.