India’s retail inflation rate grew 3.65 percent in February, marginally up from January’s 3.17 percent, mirroring flat demand as households and companies hit by the note-ban induced cash crunch barely raised spending on a raft of goods and services such as eating out, recreation, clothing and footwear.
In February 2016, consumer price index (CPI) inflation grew 5.18 percent, indicating a more expansionary economy a year ago.
Retail inflation data, measured by CPI, is the broadest metric to measure cost of living in India.
The latest price data released by the Central Statistics Office (CSO) represents a slight pick-up in the pace of remonetisation, led by an increase in food prices.
Consumer food price inflation, a metric to gauge changes in monthly kitchen costs, grew 2.01 percent as compared with 0.53 percent in January and 5.30 percent in February 2016.
Fruit prices rose 8.33 percent in February, up from 5.81 percent in January, while prices of prepared meals and snacks witnessed a negligible change at 5.45 percent growth in February and 5.54 percent in January.
The scrapping of high-value notes, imposed by the government in November last year, forced families to spend less, depressing the demand for some goods including perishable products, when the sudden currency recall exercise began.
Prices of vegetable and pulses, however, continued to remain tepid. The growth in consumer price index for “vegetables”, contracted to (-) 8.29 percent in February from 0.70 percent during the same period last year. It was (-) 15.62 percent in January.
The index for “fuel and light” witnessed a meager growth at 3.90 percent in February from 3.42 percent in January and 4.59 percent in February last year.
Housing inflation remained almost flat and grew at 4.90 percent in February, compared with 5.02 percent in January.
The price data also held out pointers on demonetisation’s effect on prices of health, transport and communication, paan, tobacco and intoxicants, and education that together account for 38 percent of India’s retail inflation basket.
At 3.65 percent, retail inflation is hurtling fast towards the government and Reserve Bank of India’s (RBI’s) the lower tolerance limit and can be a cause for worry unless steps are taken to engineer a quick turnaround in consumer spending.
High inflation hurts people’s buying power, while low inflation levels can indicate poor demand and weak economic activity. The moderation is sharper on an annualised basis.