CPI may have peaked – but just

The Prime Minister has of late been vigilant of retail consumer prices, be it food, electricity or petroleum. Earlier this week, he also took time to tweet on his government’s efforts to bring down prices, especially those of vegetables. Make no mistakes, the prices have come down, from wheat to onion and potatoes to tomatoes, from last month.

But all of this may not necessarily be reflected in the monthly February CPI, primarily because the food prices for CPI purposes are collected between 11^th -14^th of the month. That said, prices for a number of key food categories had come down in the weekly SPI of the relevant dates. For corresponding SPI weeks, prices for major food items, representing two-third of the food basket, remained largely unchanged – with an impact of negative 0.13 points.

Those looking for a massive respite in year-on-year CPI for February 2020, would do well to wait for at least another month. According to the weekly SPI food prices, total impact in points for two-third of the food basket, would be around 3.94, down by 99 basis points from January 2020 number. The big difference between February and January is in tomato prices – which have come down from Rs110 per kg last month to Rs46 per kg in February. The year-on-year change is more pronounced, contributing significantly from keeping the food price impact to be closer to January’s.

Wheat prices have come down alright from last month, but the year-on-year impact is still running in double digits. Sugar prices are highly unlikely to come down anytime soon or at all, registering a 36 percent year-on-year increase.

An eye or two needs to be kept on oil and ghee prices too. Not only have the prices increased drastically from last year, the month-on-month jump is in double digits, highest for any food category. For context, the oil and ghee have weight equal in the CPI basket as sugar, potato and onion combined. Sugar now has company in the non-perishable category, to keep the non-perishable CPI on the higher side.

Other major categories that usually undergo monthly changes, are all set to continue showing double digit increase. Electricity prices for February will have grown on similar lines to that in January. The fuel price adjustment at Re1/unit in February 2019, as against negative adjustment of Rs0.3 in the same period last year is likely to keep electricity price increase up in double digits. Petroleum prices too, face a similar fate, keeping pace with the last month increase.

From what it appears, headline urban CPI could land somewhere between 12-12.5 percent. But things would surely go better from thereon, as the full impact of price control, expected decline in petroleum prices, and likely absence of fuel price adjustments – are likely to tame inflation in the months to come.