Women buying gold jewellery amid the Covid-19 pandemic | Representational image: ANI
Women buying gold jewellery amid the Covid-19 pandemic | Representational image: ANI
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New Delhi: India’s retail inflation based on the Consumer Price Index (CPI) has consistently registered above 6 per cent in the last few months, hitting a nearly six-and-a-half-year high of 7.6 per cent in October.

But the double-digit food inflation isn’t the only thing driving up the prices, the Covid-19 pandemic has had an impact too.

Many segments like transportation and communication, health, and personal care and effects have witnessed sharp price increases, which economists attribute to the pandemic and its impact on people’s lifestyles.


Also read: Costlier manufactured items push WPI inflation to 8-month high of 1.48% in October


What’s causing high inflation?

Transportation and communication inflation, which has 8.6 per cent weightage in the overall CPI, has been rising in the last few months, and has been in double digits in August, September and October. This can be attributed to people preferring to use private transportation rather than public, due to the Covid risk.

Similarly, personal care and effects inflation, with a 3.9 percent weightage, has also been in double digits for most of the pandemic, on account of a rise in gold prices. Gold is classified under personal effects, and was people’s preferred choice of investment amid the uncertainty, since it is considered a safe investment. Its prices surged in the initial few months of the current fiscal, only tapering off more recently.

Health inflation, with a 5.9 per cent weightage in the CPI, has been hovering around 4-5 per cent, higher than the levels seen in March.

Infographic: Ramandeep Kaur | ThePrint
Infographic: Ramandeep Kaur | ThePrint

“While food inflation has led to higher CPI inflation, the pandemic has resulted in higher retail inflation too. Inflation of two commodity groups — health, and transport and communication — has remained high,” said Devendra Pant, chief economist at India Ratings and Research.

“Health inflation has increased from 2.8 per cent in April to 5.2 per cent in October 2020. It has been higher than 4 per cent in the last six months. Similarly, due to restricted public transport, inflation in the transport and communication group has more than doubled between March (4.3 per cent) and October (11.2 per cent),” Pant said.

India’s food inflation zoomed to over 11 per cent in October from 10.68 per cent in September, and has been high over the preceding months as well on account of seasonal and flood-induced shortages. This has pushed retail inflation to over 7 per cent in the last two months. Food and beverages have the highest weightage of over 45 per cent in the overall retail inflation index.

Infographic: Ramandeep Kaur | ThePrint
Infographic: Ramandeep Kaur | ThePrint

Core inflation

Crisil Ratings, in a note dated 13 November, pointed out that high inflation and low growth spells trouble for policymakers and residents, and added that India is one of the rare inflation-targeting countries that seems to be facing such a challenge at the moment.

“What complicates the situation further is that, other than food, which is the biggest contributor to the elevated headline inflation, core inflation — a better gauge for underlying inflationary pressures in the economy — has also remained stubborn despite economic contraction. This is because of higher bullion, transport and communication prices,” Crisil’s note said.

Core inflation is the non-food and non-fuel component of inflation.

Rahul Bajoria, chief India economist at Barclays, said there were four key shocks to core CPI, apart from the increase in gold prices.

“A large part of the increase in core CPI reflected higher taxes on petrol, diesel and alcohol. Stay-at-home requirements resulted in large one-off demand increases for some consumer durable goods such as washing machines, laptops and computers, which created short-term demand-pull pressures. The cost of services like monthly maintenance charges and cable connections also surged in this period,” Bajoria said in a note dated 6 November.

He said labour shortages led to rise in labour costs, and that “prices of certain items such as clothing and footwear, (as well as) public transport, were increased in response to a reduction in demand as companies attempted to reach break-even revenue levels”.


Also read: Indians seen curbing spending as they expect inflation to stay high over next year


 

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3 COMMENTS

  1. Fueled by 7.5% inflation and raised taxes on fuels, may be India can achieve an artificial GDP growth of 2%?

    With 10% food price inflation, 30% jobless at highest in 40yrs, that must be tough for India 60% earning below $3/day, 97% earning below $2000 p.a.

    India Debts to GDP has shot up from 70% to 90% this year, with huge borrowing at 8% interest for COVID crisis and military.

    Facing economy shrinking at 25%, high inflation at 7%, debt at all time high 90%GDP, yet India is eager to challenge China & Pak for 2.5 fronts wars, throwing $ in QUAD war gaming, test $Millions missiles, go weapons buying sprees $140Mils/Rafael, refuse RCEP,…how strange.

  2. TS Darbari – The pandemic has affected the global economy adversely. Though there have been several efforts made by almost every government across the globe but all in vain. Despite the potential increase in the prices of some critical goods, the impact on overall inflation during the mitigation phase could be muted. Before official lockdowns came into effect, demand for some “contact intensive” goods and services (for example, restaurants, gyms) had been declining already due to individuals’ response to COVID-19 risk. This behavior and the subsequent official lockdowns resulted in massive unemployment and income loss intensifying the fall in demand, and spreading it to other sectors. This fall in demand combined with high uncertainty and constraints on central banks’ ability to loosen monetary policy (MP), such as an effective or zero lower bound (ZLB), could create deflationary pressures especially in advanced economies (AEs). The dynamics could, however, be quite different in emerging markets (EMs). Supply disruptions combined with currency depreciations might lead to an increase in inflation even during the containment period. #TS_Darbari #Ts_Darbari_Blog #TS_Darbari_News #Ts_Darbari_Views #Ts_Darbari_Blogger #TS_Darbari_Comments #Ts_Darbari_Opinion #About_TS_Darbari #TS_Darbari_Articles #Politics #Views #Comments
    Mr. TS Darbari is a top management professional, with several years of rich & diversified experience in Corporate Strategy, New Business Development, Sales & Marketing, Commercial Operations, Project Management, Financial Management and Strategic Alliances’.

  3. Taking the excuse of pandemic situation the business barons…the corporates of big repute have done rampant corruption during this period of Corona !! Every items…each and every items of public usages have been made costly…people have been cheated by this corporates. These businessmen…these “dalals” or pimps whatever called looted this country rampantly !! Govt. at center gave them license to kill the public openly!! BJP govt. has done nothing to stop this criminal activities and gave them chance to loot this country!! This is the open truth !! Our prime minister is giving his lessons in “MAAN KI BAAT” …no maan ki baat for the countrymen about his kind of criminal acts !!SHAME …SHAME…SHAME…!!!

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