Inflation has eased — but only for some

Inflation data released on Friday provided some relief for policymakers. India’s inflation rate (or the rate at which the general price level rises in a particular month as against the same month a year ago) in November came in at 5.5 per cent. While this is higher than the Reserve Bank of India’s target of 4 per cent, it is a sharp improvement over the 6.2 per cent rate in October. The main reason for the softening in the headline inflation rate as compared to October was the moderation in vegetable prices. Even so, it is noteworthy that vegetable price inflation stood at close to 30 per cent (year-on-year) and overall food price inflation came in at over 9 per cent (y-o-y). When one takes into account the situation last November — headline inflation of 5.6 per cent and food inflation of 8.7 per cent — it provides a clear picture of how sustained high inflation creates a cost of living crisis.

The relief in headline numbers hides wide variation across the geographies and economic classes. For instance, Delhi had the lowest inflation rate (2.7 per cent) among all states and Union Territories while bordering UP stood at 6.7 per cent and Haryana at 5.3 per cent. Further, an analysis by Crisil Research showed that the inflation rate was far more palatable for the urban rich — 4.6 per cent for those among the Top 20 per cent income segment of urban India — while considerably higher as one went down the income scale and from urban to rural India; inflation was at 6.1 per cent for those in the bottom 20 per cent of the income segment and living in rural India. This variation is because inflation is higher among essential items (such as food) that account for a greater share in the consumption basket of the relatively worse off.

In its latest policy review on December 6, the RBI stated that going forward, food inflation is likely to soften. Moreover, the appointment of the Revenue Secretary as the new RBI Governor has also prompted many to pencil in a rate cut in February. However, it is also true that in its last meeting, the RBI not only raised the inflation forecast for the full year but also provided detailed caveats highlighting the continuing risks to inflation. Clearly, there are no easy answers but as he was leaving office, outgoing Governor Shaktikanta Das reminded everyone of the age-old wisdom in this regard: Price stability is essential for sustained economic growth.

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