India’s retail inflation eased to 4.87 percent in October from 5.02 percent in September due to a combination of a favourable base effect and moderation in core inflation. This is a welcome relief from the whopping 7.44 percent inflation in July.
While core inflation edged lower to 4.27 percent from 4.5 percent in September, food inflation continues to remain sticky at 6.61 percent. Inflation in the non-food components — pan, tobacco and intoxicants, clothing and footwear, housing, fuel and light and miscellaneous — moderated on a year-on-year (y-o-y) basis in October as compared to the previous month.
Retail inflation could inch back to above 5 percent as food inflation continues to remain a concern.
Production of major kharif crops is expected to drop in the 2023-24 season due to an uneven monsoon. This could pose an upside risk to food inflation in the coming months. According to the Reserve Bank of India’s (RBI) own projection, inflation is likely to average 5.6 percent in the current quarter and 5.4 percent for the full year.
Among the poll-bound states, Rajasthan registered a high inflation of 6.25 percent in October. Telangana also registered an inflation of above 5 percent. Inflation in Chhattisgarh was lower at 2.44 percent and Madhya Pradesh also registered a benign inflation of 3.99 percent.
Inflation specifics
Inflation in cereals and pulses continues to remain elevated at 10.65 percent. This is only a marginal dip from 10.95 percent registered in the previous month. Spices and pulses also reported high double-digit inflation in October. Inflation in fruits increased from 7.3 percent in September to 9.34 percent in October.
Sequentially, all the indices within the food category other than “Oils and fats” saw an uptick, implying that the momentum in inflation has not faded. After declining for two months, the CPI food inflation rose by more than 1 percent month-on-month. The sequential uptick in vegetable inflation is concerning — from a 15 percent contraction in September to more than 3 percent rise in prices in October on month. This was due to a sharp rise in onion prices. Since onion prices started rising from the second half of October, its impact will be seen in the November print.
Fight against inflation in poll-bound states
Keeping prices under check has been a priority for poll-bound states, with promises ranging from subsidies on cooking gas to income support and higher pensions to ease the burden on households.
Escalating prices are surely an issue for Rajasthan and Telangana where inflation has remained above 6 percent in the current financial year as compared to Madhya Pradesh and Chhattisgarh where inflation has been relatively moderate.
In Rajasthan
While inflation in Rajasthan has eased in October from the peak of 9.66 percent in July, it still continues to remain above the upper threshold of 6 percent. For the period from April-October, inflation in Rajasthan was 6.62 percent. Noticeably, inflation in Rajasthan remained above the national average in each of the months of the current calendar year.
To bring relief from inflation, in the current year’s budget, Rajasthan Chief Minister announced a Rs 19,000 crore package, which included the supply of free food packets every month to poor families, gas cylinders at Rs 500 to the below poverty line families, and free electricity upto 100 units to domestic consumers. In April, 2023 the state government launched the ambitious Mehangai Rahat Camp (inflation relief camps) to provide these benefits.
A key reason for high inflation in Rajasthan is that its VAT (value-added tax) on fuel is one of the highest in the country. Fuel inflation was 24.49 percent in Rajasthan in October. While food inflation eased to 6 percent after registering double-digit growth in July and August, inflation in cereals, pulses, fruits and spices continue to pinch the budget of households. Till July, inflation in milk and milk products was also in double-digits in Rajasthan.
In Telangana
Inflation in Telangana also eased to 5.37 percent from above 8 percent inflation in July and August. The average inflation in the current financial year has been above the upper threshold of 6 percent. Telangana is impacted by seasonal spikes in vegetable prices. While the headline inflation has moderated since September, inflation in food products continues to adversely impact households’ budget. Inflation in pulses has been above 20 percent in the last two months. Cereals and spices also continue to register high double-digit inflation.
A common theme in both Rajasthan and Telangana has been the sustained high inflation in the “clothing and footwear” category in FY 2023.
The opposition parties have decided to protest against rising prices of essential commodities. Inflation is likely to be a major pain point for the ruling party in Telangana.
In Madhya Pradesh
Inflation in Madhya Pradesh has been less than 4 percent in this financial year except in July and August when elevated food inflation led to higher inflation across all states.
In contrast to Rajasthan and Telangana, where inflation has been easing after peaking in July, inflation in Madhya Pradesh has inched up in October due to an uptick in food inflation.
Double-digit inflation in pulses, spices, cereals and fruits could become a sore point for the ruling party. Both the ruling and opposition parties have made a slew of promises including hike in procurement of wheat and paddy and supply of subsidised gas cylinders.
In Chhattisgarh
Chhattisgarh reported the lowest inflation among states in the last two months. As compared to above 6 percent in the other three poll-bound states, food inflation in Chhattisgarh has been low at 2.79 percent. This is due to lower cereal inflation and contraction in vegetable prices in the last two months.
Whether inflation impacts the poll outcome is yet to be seen but the political parties are going all out to assure voters of subsidies and cash transfers to ease the pain of rising prices, as they look to win elections in these key states.
Radhika Pandey is associate professor at National Institute of Public Finance and Policy (NIPFP).
Views are personal.
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