The CPI inflation stood at 8.35 percent in November 2020, and on a monthly basis, prices increased by 0.82 percent. The increase in food – mainly perishable—continued despite the government claiming administrative measures. The divide between the urban and rural inflation has lowered, yet the rural inflation on monthly basis (1.1%) is higher than urban (0.6%). The gap between rural and urban is decreasing, but still the gap is at 3.5 percent.

The 5MFY21 average inflation stood at 8.8 percent as compared to 10.8 percent in the same period last year. In Nov, the CPI at 8.35 percent is less than 8.9 percent in October. In Dec, the headline number would be higher due to low base in the last year, and the number would likely be under 8 percent in January 2021 due to high base effect. The full year inflation may surpass 9 percent if the food price increase is not addressed. With better performance, the CPI would be around 8-9 percent for the full year.

Food prices increased by 1.9 percent on a monthly basis with perishable food items increase at 6.5 percent. Interestingly, perishable price increase on yearly basis is at 6.2 percent. This implies that prices came down earlier this year and now are moving up again. The more permanent impact is of the increase in non-perishable items which increased by 17.3 percent on a yearly basis. The overall food inflation increased by 15.1 percent as compared to Nov-19.

In November, chicken (urban:21.4%), tomatoes, potatoes, onions and vegetables pushed the inflation up. Many of the key food commodities are up in range of 30-60 percent including chicken, potatoes, eggs, wheat and sugar, the impact of all these on the poor is big. In the rural setup, average household spend 40 percent of monthly expenditure on food. Many of these must have moved down the poverty line. Apart from poor administration, changing weather pattern, locust attack, expensive inputs, and supply chain disruption due to COVID and tension with neighboring countries are a few reasons for spike in inflation.

Apart from food items, readymade garments prices increased significantly in Nov – up by 8.9 percent in urban centers; while the garments increase is much less in rural areas. The increase in food and other items is compensated by the decline in transportation services (6.4%), motor fuel (1.8%) and electricity charges (3.2%). Lower oil prices kept inflation in check.

However, oil prices are on the way up now. In December, the HSD prices went increased by Rs4/liter for the first two weeks. This will put some pressure. The good news is that SPI weekly prices are down by 0.92 percent for the week ending 26th November. There is downward revision in prices of tomatoes, onions, chicken and sugar in the last week, and these will contain the prices in December despite the high base effect.

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