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NEW DELHI : Prices of nearly half the items used to compute India’s retail inflation are rising at alarming rates of more than 6% a year, a Mint analysis shows, even as headline retail inflation has slipped close to the Reserve Bank of India’s (RBI’s) 4% target.

Last month, as many as 131 of 293 items (45%) that make up the Consumer Price Index (CPI) basket saw inflation above the key upper tolerance limit of 6%, a sign that inflation may be pinching consumers much more than what the overall numbers suggest. Data released last week showed CPI inflation was 4.48% in October, staying within the 2-6% acceptable range for the fourth month in a row.

Inflation vagaries
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Inflation vagaries

CPI inflation, the key policy target for RBI, is appearing to cool down when most advanced and emerging economies are grappling with skyrocketing price levels. India has been able to keep prices seemingly under control, mainly due to base effects and low food inflation. But the item-level analysis shows the headline figure does not tell the entire story.

For four months, CPI inflation has been in the range of 4.35-5.59%, a rare streak of inflation falling within the target range in the pandemic era. However, in each of these months, the share of items recording over 6% inflation has been as much as 45-48%.

Leading the pack
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Leading the pack

Even in entire 2020, when inflation mostly stayed above 6%, the share of items recording such high levels of price rise never crossed 40%.

Fuels, edible oils and airfares lead the pack, with their average inflation since August being as much as eight times the headline inflation rate. The elevated price levels of fuels and edible oils have been a concern lately and have often been highlighted by RBI’s monetary policy committee (MPC).

Madan Sabnavis, chief economist at Care Ratings, said the hotel, tourism and airline industries had been revising fares upwards as the economy opened up, and this was likely to push up inflation further. Moreover, high fuel costs are getting translated into freight costs, affecting virtually all commodities, he said.

As many as 44 of 293 items recorded inflation in double-digits in October, including consumer-centric products such as washing machines, two-wheelers and televisions, and protein-rich items such as chicken and masur.

The inflationary pressures are getting masked due to the nature of the CPI basket. Not all items are treated equally, so low-weightage items that are getting dearer may not be reflected to the same extent in the summary data. Food items and house rent, which have high weightage, have their inflation under control. The food and beverage group makes up for 45.9% of the basket, while housing accounts for 10.1%. It is for this reason that many economists favour tracking core inflation for determining monetary policy response. Core inflation, which excludes volatile items such as food and fuel, has been somewhat sticky since the pandemic.

“If we look at non-food basket, everything is going up," Sabnavis said. “Normally, clothing, rent, education, healthcare change occasionally. Now, we have a situation that because of the pandemic, there’s a readjustment of prices, and we see a more broad-based rise in non-food items."

With the base effect set to fade, vegetable prices are seeing an uptick, and core inflation remaining sticky, economists expect the RBI’s rate-setting panel to take steps to normalize the loose policy when it meets next month.

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