CPI at a 30-month high

The CPI is slowly but surely creeping up – having recorded a 30-month high of 4.94 percent in March 2017. It was also a 30-month high for food inflation, which crept up to 5 percent in March 2017. The Jul-Mar general average CPI has for the first time gone beyond 4 percent in the fiscal year – although, it appears manageable and well within target.

Food inflation was the single largest contributor to month-on-month inflation of 0.84 percent in March. The perishable food inflation alone accounted for 0.64 percent increase on month-on-month basis, as vegetables and meat became dearer. The 12-month moving average for food sub index is 3.6 percent, up from just 1.9 percent for the same month last year.

A more significant blow is due to be reflected in next month’s CPI number, as the government has now officially notified of Rs5/ltr increase in fresh milk prices. Mind you, milk has the highest weightage of 6.68 percent in the food category and it alone weighs more than health and education combined. A 6.25 percent jump in fresh milk prices is sure to send the perishable food sub-index noticeably soaring.

The transport fuel prices are also increasing, as reflected in the CPI. The monthly rise is still well under control, but it has been going on for over five months and the cascading effect onto the other categories must be round the corner. The housing sub index continues to grow below 5 percent year-on-year, and it keep posing questions on the methodology and accuracy, as anecdotal evidence suggests house rents to have increased at considerably higher rates.

The moving average non-food non-energy core inflation is also sitting at one year high of 4.9 percent, up from 4.3 percent a year ago. It may not go out of control, but the trends in the medium term do appear inflationary. Recall that the monetary asset growth continues to be worryingly high near 15 percent. That too, is skewed towards net domestic assets. The ratio of NFA to NDA has not improved and the correlation suggests higher inflation coming up.