While retail inflation inched up to 5.77% in June 2016, what is more striking is the yawning gap between rural and urban inflation. Urban inflation for June 2016 has been captured at 5.2% but the retail prices, also called Consumer Price Index (CPI), in rural India rose by 6.2% in the same month, thus indicating a higher inflationary burden on the already distressed rural folks. While the transportation costs and the ongoing change happening in rural consumption basket could be the reasons for it. “But still the government needs to look at those items which are driving rural inflation even higher than urban inflation,” says Sunil Sinha, Principal Economist with India Ratings & Research. Many commoners (both urban and rural markets) complaint that (actual) street inflation is more than what government data captures.
More worrisome is food inflation which stands at 5.7% in rural markets and over 8% in the urban markets. The combined food inflation, urban plus rural, is at a kissing distance of 8%. Analysts say that it should be the concern of the government since inflation has a (political) cost. However, there is also a benign picture. “The upward price pressure is concentrated mainly in cereals and vegetables and is not broad-based,” says Neha Saraf of Nomura Securities. But the fact remains that the CPI inflation is still above the 5% target that RBI wants to achieve by March 2017.
While this year’s budget has been rural and agriculture-centric but its impact would play out in the longer term. In the shorter term, the government should be ultra-careful on inflation front. The inflation at the wholesale front has also presented a grim picture. As per the government data released this week, the wholesale prices rose at 1.6% in June this year, while food inflation crossed 8% mark mainly driven by vegetable prices (17%).
However, many see the recent up-stick in retail inflation as a sign of demand revival which was missing till a couple of months ago. “This would console the industries that their idle manufacturing capacities may not remain so in near future,” says Deepak Kapoor, Financial Analyst at ADC Legal. What hurts the common man is lack of jobs and stagnant salaries of private sector employees, adds Kapoor. To contain cereals inflation, government has taken measures like moderate hike in minimum support prices for cereals. But what shoots up food inflation are largely pulses and vegetables that get destroyed in both deficient and excess rainfall.