Not just food, but fuel, minerals and metals are fueling retail inflation, data show

The latest inflation prints, both at the wholesale and retail levels, may have moderated slightly, but a closer look at the data reveals a marked increase in all items over the past four quarters, suggesting inflation is becoming generalized.

Inflation rates for items such as minerals, edible oils, oilseeds, dairy and poultry products have accelerated over the past year, with the cascading effect of increased fuel prices clearly visible in segments such as manufactured products such as rubber, plastic products, furniture and transportation and communications. .

The looming concern is that the sharp rise in producer prices will gradually end up in the basket of consumer goods, which will translate into consumer price inflation with some delay. Adding to this concern is the fact that inflation rates in major economies are also rising as a result of rising commodity prices and recovering demand after the pandemic.

The most recent inflationary pressures for the US were the highest in 13 years, rising to 5.4 percent in June.

The RBI will have to walk a tightrope to balance growth and inflation amid subdued consumer demand.

The only glimmer of hope: As economies open up, there could be a reallocation of consumer spending towards services, which could ease pressure on goods on the demand side, thereby easing some inflationary pressure on the goods side.

The outlook for wholesale prices, which is an indicator of producer prices, is worrying: they have risen steadily over the past four quarters, reaching the highest level of 11.9 percent in April-June in the 2011-12 series. This will certainly translate into higher retail inflation. High state and central fuel taxes and high crude oil prices have pushed inflation for crude oil, petroleum and natural gas to 55.5 percent in April-June, from -35.6 percent in April-June 2020 and 9 percent in January -March this year. Since monsoons are patchy, both spatially and timing, this is expected to further fuel food inflation.

In terms of retail inflation, the trend was mirrored: inflation for the transportation and communications segment rose to 11.58 percent in April-June this year, from 6.78 percent in April-June a year ago. Fuel and light inflation rose sharply to 10.83 percent in April-June, from 3.95 percent a quarter ago and 1.66 percent in the same period a year ago.

The cascading effect of high fuel and commodity prices is also seen in the inflation rate for manufactured products, including manufactured foods. Wholesale inflation for textile manufacturing has risen steadily to 11.7 percent in April-June from 7.3 percent a quarter ago and -3.5 percent a year ago, while that for paper and paper products rose to 10.4 percent from 5. .4 percent. percent a quarter ago and -2.1 percent a year ago.

Wholesale inflation for the manufacture of furniture, including wood, iron/steel furniture and plastic fixtures, rose to 12.1 percent in April-June, from 5.5 percent a quarter ago and 0.9 percent a year ago. Similarly, inflation for rubber and plastic products, which have crude oil as the main component of production, rose in April-June from 8.8 percent a quarter ago and -1.8 percent a year ago to 13.1 percent.

The rise in inflation is mainly due to the rise in the prices of commodities such as crude oil, minerals and base metals. Since this is producer prices, this will translate into CPI with some delay, depending on commodity to commodity, said Devendra Kumar Pant, chief economist of India Ratings.

In the wholesale food sector, pulses inflation, the usual segment for price increases, has declined slightly from 12.4 percent a year ago to 11.4 percent in April-June. A stronger increase is seen for eggs, meat and fish, for which inflation rose to 10 percent in April-June, from 1.4 percent a quarter ago and 3 percent a year ago.

Earlier this month, Chief Economic Adviser Krishnamurthy Subramanian speaking at The Indian Express Idea Exchange had said that most of the inflation comes from food inflation. As an economist, when we talk about inflation, as an economist I worry about food inflation because almost 50% of CPI inflation comes from food inflation. Also last year, when inflation remained above 6 percent for several months, it was due to food fueled by supply-side inflation, he said.

According to Nomura, aggregate retail inflation is expected to average around 6-6.3 percent in July-September, followed by moderation to around 5.2-5.5 percent in October-December due to base effects, before rebounding. rise to 6.2-6.5 percent. cents in January-March 2022.

The slight moderation in inflation numbers in June reflects the easing of the price flare-up caused by lockdowns during the second wave of the Covid-19 pandemic, but levels will remain high, economists said. The Reserve Bank of India also pointed to the impact of supply-side constraints on inflation in its monthly bulletin on Thursday. Picking up inflation is largely caused by unfavorable supply shocks and sector-specific mismatches between supply and demand as a result of the pandemic. These factors should ease over the year as supply-side measures take effect, it said.