Food lifts CPI, non-food continues to soften

Inflation based on the Consumer Price Index (CPI) rose to 5.6% in November from 4.9% in October, driven by a jump in the prices of vegetables, fruits, sugar and pulses that lifted food inflation to 8.7% from 6.6% in October. A low-base effect also came into play. On the other hand, non-food CPI softened further.

Higher food prices come back to haunt: This fiscal, India has seen two vegetable price shocks in the first nine months. While the first vegetable price shock was due to tomato, ginger and brinjal turning dearer, this time it was onion, garlic and tomato. The recurring flare-ups are a reminder that as long as food prices remain high and volatile, they will continue to influence headline inflation and subsequently, the monetary policy. In recent years, most of the volatility in food inflation has stemmed from vegetable prices where focused policy actions can help tame swings. In our October Insight¹, we had highlighted how:

• Vegetable inflation in India has been trending up, with more frequent price spikes in recent years
  
• Demand for vegetables has outpaced supply keeping prices high
  
• Unfavourable risk-reward dynamics and price uncertainty also disincentivise vegetable growers