Last mile woes: On inflation data and the challenges

The latest retail inflation data from the National Statistical Office has highlighted ongoing challenges in achieving stable prices, with the Consumer Price Index (CPI) inflation rate rising marginally to 3.65% in August from 3.60% in July. This increase is attributed to a sharp rebound in vegetable inflation, which has affected overall food price gains.

Inflation Dynamics 

• Vegetable Inflation Surge: In August, inflation for vegetables surged to 10.7%, a 380 basis point increase from the previous month, causing food price inflation to rise to 5.66%. Notably, prices for widely consumed items like potatoes and onions remained in high double digits.
• Food Inflation in Rural Areas: Food inflation in rural areas exceeded 6%, impacting the agrarian sector where private consumption is struggling to recover. This rise in food prices is expected to adversely affect consumption and economic growth in these crucial regions.
• Core Inflation Concerns: Core inflation, excluding volatile food and fuel prices, inched up to 3.38% in August after a 17-month decline. The increase in prices charged by manufacturers indicates heightened cost pressures, complicating the inflation outlook.

Challenges to Inflation Control

• Disinflation Difficulties: Achieving the RBI’s medium-term inflation target of 4% is proving challenging due to persistent food and core inflation. The current economic conditions have made it difficult to stabilize inflation without undermining broader economic momentum.
• Monsoon Volatility: The variability in monsoon patterns adds uncertainty to the inflation outlook. The spatial and temporal unpredictability of rainfall impacts agricultural output and, consequently, food prices, further complicating efforts to control inflation.
• Policy Response: RBI Governor Shaktikanta Das has acknowledged the difficulties in achieving the final stages of disinflation. Authorities are committed to addressing inflationary pressures and ensuring that inflation does not impede economic growth.

Practice Question:

Q. How does the vegetable and core inflation impact the overall economic stability?