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Floods in North India Push India’s Retail Inflation at 4.8% Higher than forecast

Inflation at 4.8% Tomato price shocks

Inflation at 4.8% is higher than our forecast of 4.5% and clearly the path ahead looks grim given the progress of monsoon and the spread across key areas in the Deccan Plateau region.

The food basket is beginning to bite with inflation of 4.8% here

  • The major elements driving this inflation are cereals (12.7%), eggs (7%), milk (8.6%), pulses (10.5%) and spices. Edible oils has helped to push down inflation with -18.1% inflation. Major concern here is vegetables where disinflation has moved from -8% region last month to just -0.1% and is all likely to go ahead sharply next month due to the tomato shock. As area under irrigation under rice, maize and pulses is lower (along with soybean), there will be upward pressure on both cereals and pulses.
  • Clothing and furniture inflation continues to be high at 6.2% and has not displayed any tendency to come down. Higher input costs has contributed to this high inflation rate.
  • Housing and fuel and light have witnessed relatively stable inflation which is comforting.
  • The miscellaneous group, which is an integral part of core inflation remains above 5% at 5.2%.
  • Household goods, personal care items, education and health have inflation of above 5%. The transmission of higher input costs continues notwithstanding announcements made by some consumer goods companies that they would be lowering their prices given stabilization in costs.
  • Recreation and transport and communication have witnessed low inflation.

9 states had inflation above the average while 6 had above 5%- UP, Uttarakhand, Rajasthan, Kerala, Bihar and Haryana. The recent floods and landslides in the north will tend to push up inflation further in these states on the food side – especially vegetables and fruits which can add another 0.2% to headline inflation.

Inflation trajectory can be expected to move upwards given the fact that food prices are on the rise and movement towards 5% in the next couple of months looks possible depending on how vegetable, pulses and cereals prices behave.

The RBI will keep a keen eye here and it is almost given that nothing will change in the policy next month. More caution will be expressed on the inflation front.

IIP growth at 5.2% was a pleasant surprise for May given that we had forecast 4.5%. However, the internals show some useful insights.

  • The consumer durable segment continues to stagnate at 1.1%. FMCG production has picked up in May with 7.6% growth that can be attributed to some revival in rural demand post rabi harvest.
  • Capital goods have done well which is positive. This is seen with growth of 8.2% with both electrical and non-electrical equipment doing well.
  • Auto sector has done well across the board but it needs to be seen if this is sustained as post-harvest demand from rural India has helped here along with the marriage season.
  • Infra related non-metallic minerals and metals have done well in line with higher government capex. This trend will slow down during monsoon time when activity decelerates.
  • There have been several disappointments with negative growth in industries such as : beverages, good, tobacco, textiles, (exports falling), wood, paper, chemicals (except pharma), furniture and electronics. There is need to revisit the PLI to see how some of these sectors are likely to fare especially electronics.
  • On the whole it is a mixed bag, with infra oriented sectors doing better. We still need to see consumer spending increasing.

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I'm Ved Prakash, Founder & Editor @Newsblare Media, specialised in Business and Finance niches who writes content for reputed publication such as,, Motley Fool Singapore, etc. I'm the contributor of different... news sites that have widened my views on the current happenings in the world.

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