Inflation is out of RBI comfort zone

New Delhi: The RBI needs to be worried: Retail inflation during October was above the central bank’s comfort level of 4 per cent. Retail price based consumer inflation spiked to a 16-month high of 4.62 per cent in October.

The surge was led by food items; this, in turn, has reduced the headroom for a rate cut by the RBI in its monetary policy due next month. The inflation based on consumer price index (CPI) was 3.99 per cent in September and 3.38 per cent in October 2018.

The earlier high was reported in June 2018 when retail inflation sneaked up to 4.92 per cent. What is disconcerting is that inflation in the food basket spurted to 7.89 per cent in October 2019, as against 5.11 per cent in the preceding month, shows the data released by the Central Statistics Office under the Ministry of Statistics and Programme Implementation.

Worse, inflation in vegetables spiked to 26.10 per cent -- from 5.40 per cent in September; in the case of fruits, it jumped to 4.08 per cent from 0.83 per cent.

Likewise, the prices of cereals, meat and fish, eggs grew at a faster pace of 2.16 per cent, 9.75 per cent and 6.26 per cent, respectively. For pulses and related products, retail inflation rose to 11.72 per cent.

However, the prices of fuel continued to witness downward movement. Aditi Nayar, an economist at ICRA said, the pace of rise in vegetable prices will be the key driver of food inflation over the next few months.

If retail inflation continues to hover higher than 4 per cent in the remainder of FY2020, it will complicate policy choices in light of the economic slowdown.

Rahul Gupta, Head of Currency, Emkay Global Financial Services, blamed the sharp rise on the uptick in food prices amid erratic monsoon.

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