Food price inflation eased to a nine-month low of 7.87% in June as temporary supply constraints due to the nationwide lockdown eased, while retail inflation at 6.09%, released after a gap of two months, came surprisingly above the pre-coronavirus print of 5.84% for March.
The National Statistical Office (NSO) revised food inflation for May downward to 9.2% from 9.7% estimated earlier. Rural food inflation in June at 8.41% remains way above urban food inflation at 6.92%.
Due to mobility curbs amid the nationwide lockdown in April and May to contain the spread of covid-19, price collection of Consumer Price Index (CPI) through personal visits by price collectors was suspended in the two months.
In a technical note released along with the retail inflation data, NSO said it has held wide-ranging consultations with multilateral organizations such as the International Monetary Fund (IMF) and several countries on how they are managing and addressing data flow challenges on account of the pandemic. Using imputation method, by which missing data is compiled, NSO calculated retail inflation for April (9.9%) and May (8.9%) but cautioned that these should be used only for maintaining continuity in the CPI series.
Aditi Nair, principal economist at ICRA Ratings, said the retail inflation rate posted a negative surprise, revealing an inflation rate well above expectations. “Today’s print implies retail inflation in June was higher than the level in March, when the lockdown was first imposed, challenging the view that demand destruction would cool inflation despite the supply-side hiccups,” she added.
The higher headline retail inflation was driven mostly by protein items such as meat and fish (16.2%), oils and fats (12.3%), pulses (16.7%) as well as by paan, tobacco, intoxicants (9.7%) and personal care services (12.4%).
With monsoon rains exceeding the normal precipitation by 13% as on 12 July, kharif sowing having spread to more than half of last year’s total acreage, and demand from hotels and restaurants remaining subdued, the outlook for food inflation is favourable. “Moreover, the provision of free foodgrain under the Pradhan Mantri Garib Kalyan Anna Yojana is expected to ease the overall demand-supply balance for certain cereals and pulses, and aid in cooling prices. However, the disruption related to the heavy rainfall and reimposition of localized lockdowns in some states may create a temporary uptick in vegetable prices in urban areas,” she added.
While retail inflation for June exceeded the upper range of the central bank’s tolerance level, the severe economic slump is expected to keep monetary policy accommodative in the foreseeable future. Reserve Bank of India (RBI) governor Shaktikanta Das on Saturday said the focus of the central bank will remain on reviving growth and restoring financial stability.
Monetary policy was already in an accommodative mode before the outbreak of covid, with a cumulative policy rate cut of 135 basis points between February 2019 and the onset of the pandemic.
“Given the uncertainty regarding the evolution of the covid curve, it was critical to anticipate the emerging economic risks and take pro-active monetary policy actions of sizable magnitude, using a comprehensive range of policy instruments to optimise policy traction,” Das said.