A sharp fall in vegetable prices has led India’s retail inflation to ease from 6.58% in February to a four-month low of 5.91% in March. However, supply shortages due to the 21-day lockdown could push up inflation in the short run, said analysts.
Food inflation declined from 10.81% in February to 8.76% in March because of falling onion prices, shows data released by the National Statistical Office (NSO) on Monday. This was reflected in vegetable inflation softening from 31.61% to 18.63% in the two-month period. The number gives a false sense of improvement in inflation, given that the real impact of the lockdown will be felt in April as prices of food items have increased quite sharply, said Madan Sabnavis, chief economist at Care Ratings.
“With the lockdown and limited movement of goods because of the absence of labour, trucks, and activity in wholesale markets, there have been sharp decline in supplies of foodgrain, horticulture, and sugar, which is reflected in high prices in the market. This can push food inflation towards the 10% mark,” said Sabnavis.“However, core inflation will trend downwards as service prices would not change and those products with maximum retail price would not witness a change in prices even with supplies declining.”
Trucks are getting detained, workers needed for producing essential goods are not getting passes, and cold storages are not being allowed to function, home secretary Ajay Bhalla said in a letter to states on April 12.
There is a strong likelihood of an uptick in urban retail inflation during the lockdown period, followed by a subsequent resumption of the correction in CPI inflation as the situation normalises, said Aditi Nayar, principal economist at ICRA Ratings. “Revenue considerations of central and state governments suggest that the fall in crude oil prices is unlikely to transmit to a reduction in retail prices of diesel and petrol in the near term,” she said.
In March, rural inflation at 6.09% stood higher than urban inflation at 5.66% while fuel inflation marginally rose to 6.59% from 6.36% in February.
However, an array of forward-looking indicators by the Reserve Bank of India (RBI), such as household inflation expectations survey and professional forecasters survey, points to a much softer inflation trajectory going ahead.
