The Consumer Price Index (CPI)-based inflation for December came in at 4.59 percent, primarily due to a fall in food inflation.
India’s consumer price index (CPI) inflation cooled in December 2020 as prices of kitchen staples eased, and would have been much lower but for a rise in retail prices of rice, pulses and cooking oil, latest data show.
A moderation in retail prices of onions, ginger and garlic— must-haves in most Indian kitchens—helped cool inflation based on the consumer price index to 4.6 percent in December last year, bringing it within the comfort zone of the Reserve Bank of India, commodity-level inflation data published by the ministry of statistics and programme implementation (Mospi) show. However, higher retail prices of rice, pulses and cooking oil prevented the index from trending lower.
The rise in CPI in December 2020 was the slowest since September 2019 and was also below the 6 percent mark for the first time since March 2020. The rise in consumer food price inflation at 3.4 percent was the slowest since August 2019, when it had climbed nearly 3 percent.
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Onions, A Different Story
The index reading for onions fell 46.5 percent, for ginger 24.5 percent, and garlic 19.1 percent from a year ago, as retail prices of these crops were lower in December 2020, compared to the same month of 2019. Retail prices of onions had climbed and stayed stubbornly above Rs 100 a kilo in many parts of the country throughout December 2019, as a late withdrawal of the south-west monsoon and excess rainfall in some regions had damaged the crop. In comparison, prices of the bulb were relatively moderate, though still high, at around Rs 40-70 a kilo in December 2020, data compiled by the price monitoring division of the consumer affairs ministry show.
Cauliflower, which grew in abundance this winter helped by ample soil moisture and favourable climatic conditions, also contributed to the cooling of CPI inflation as its prices crashed at the farmgate level. The index reading for cauliflower fell 22.4 percent from a year ago. The maximum wholesale price of this cruciferous vegetable in Delhi’s Azadpur mandi stayed below Rs 1,000 a quintal for most of December 2020, against Rs 2,000 a quintal in the same month of 2019, according to data compiled by the Agmarknet portal of the ministry of agriculture and farmer welfare.
What happened to vegetable prices?
Lower prices of other vegetables such as radish, carrot, cabbage and brinjal and fruits such as papaya, oranges, lemon, banana and guava also helped cool food-led inflation during December last year. Overall, the December index reading for vegetables was 10.3 percent lower, from a year ago, while that for fruits was up a modest 2.7%.
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Food items together account for nearly 47 percent of the consumer price index, with milk and non-PDS rice having the largest weight. Potatoes have more weight than onions, and rice more than wheat. Potato and rice prices put upward pressure on the CPI as prices of both items were higher in December 2020 and while wheat cooled. Retail prices of potatoes and onions are expected to decline in the coming months, and that will further cool CPI-based inflation.
Milk prices were higher in December 2020 compared to 2019, as producers passed on the increased cost of cattle feed and other expenses to consumers during 2020. Milk has the highest weight among all food items in the basket of goods and services used to construct the CPI, and therefore any increase in prices, which is usually affected once or twice a year, will have its impact in the price index.
The biggest risk for food inflation could come from pulses in the coming months. The prices of various pulses were higher in 2020 than in 2019 and arhar/tur dal, urad dal and chana (gram) have trended higher from October. A higher minimum support price is only one of the reasons for an increase in their prices. Chana is a winter crop while arhar and urad are summer crops. A bumper harvest of chana could cool its price in the coming months, as the crop arrives in the market. Arhar/tur and urad might climb higher.
Consumer price inflation can get pushed higher by prices of refined cooking oil and mustard oil prices, which like those of pulses, have been much higher in 2020 and rising month after month. Prices of these oils were 20-25 percent higher in December 2020, from a year ago.
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Risks to inflation will also come from higher fuel prices in the coming months as global oil prices are climbing once again as the Organization of the Petroleum Exporting Countries (OPEC) has decided to cut output. A reduction in taxes levied by the Union and state governments will be needed to provide consumers with some relief.