Home >News >India >Food inflation eases to nine-month low of 7.87% in June

NEW DELHI : Food price inflation in June eased to a nine month low at 7.87% as temporary supply constraints due to the nationwide lockdown eased while headline retail inflation at 6.09% released after a gap of two months came surprisingly higher than the pre-coronavirus print of 5.84% for March.

National Statistical Office (CSO) 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%.

In view of the mobility restrictions and announcement of nation-wide lockdown by the government to contain spread of covid-19 pandemic, the price collection of CPI through personal visits by price collectors was suspended in April and May. In a technical note released along with the retail inflation data, CSO said it held wide-ranging consultation with multilateral organisations like International Monetary Fund and several countries on how they are managing and addressing the data flow challenges on account of the pandemic. Using imputation method, by which missing data is compiled, CSO 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 that 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 pan, tobacco, intoxicants (9.7%) and personal care services (12.4%).

Nair said with the monsoon rainfall exceeding the normal rainfall by 13% as on July 12, kharif sowing having spread to more than half of last year's total acreage, and demand from the hotels and restaurants segment remaining subdued, the outlook for food inflation is favourable. “Moreover, the provision of free foodgrains 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 their prices. However, the disruption related to the heavy rainfall and reimposition of localised 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 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-19, 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 absolutely 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.

“The central bank’s rate cut decision will depend on growth more than inflation figure because growth is still a worry. Going ahead, as coronavirus led restrictions slightly recover and as supply crunch reduce we may see CPI falling below 6%," Rahul Gupta, Head of Research- Currency at Emkay Global Financial Services said.

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