In February 2020, the retail inflation moderated to a 3 month low of 6.6%, 1% lower than 7.6% a month ago. However, for the 3rd successive month, the retail inflation remained above RBI’s upper band of inflation target (6%). Compared with comparable month a year ago, the retail inflation is 4% higher than the 2.6% inflation for February 2019.
CARE Ratings’ had estimated CPI based inflation at 6.1%.
The moderation in the inflation during the month can be ascribed to partial moderation seen in the food segment though the elevated fuel prices have put an upward pressure on the inflation.
CPI Food inflation based on Consumer Food Price Index (CFPI) grew at a double digit pace at 10.8% in February 2020 as against deflation at - 0.7% in February 2019. It however was lower than the 13.6% inflation rate seen a month ago. This moderation in part can be ascribed to decline in the inflation rates in vegetables, fruits, meat and egg, pulses
Average inflation (April – February) in FY20 stood at 4.7%, which was highest in the past 3 years. It was higher than 3.5% inflation registered during FY19 (April – February).
The rural and urban area continued to witness inflation above 6.5% in February 2020 with the rural inflation marginally surpassing urban inflation.
Exhibit 1: CPI inflation (y-o-y %)
Food inflation in February 2020 grew at 9.5% as against deflation at -0.1% in February 2019. However, compared with a month ago level, food inflation was 2.3% lower during the month. Reduction in the vegetable prices, pulses, meat and egg and pulses have aided in the reduction in the food inflation in February 2020 though it continued remained pressured on account of unfavourable base effect.
Inflation in pan, tobacco grew at 4.1%, 1.4% lower than the 5.5% growth in the comparable month a year ago. However, it was 50 bps higher than that in January 2020.
Clothing and footwear too moderated by 70 bps to 2.1% compared with 2.7% in February 2019. However, it was 10 bps higher than a month ago levels.
Inflation in housing remained stable at 4.2% from a month ago. However, it was 90 bps lower than that in February 2019
The inflation in the fuel and light rose to 15 month high to 6.4% in February 2020 as against the 1.2% growth seen in February 2019 due to delayed impact on reduction in the global crude oil prices.
Miscellaneous items inflation moderated to 4.5%, 30 bps lower than 4.8% a month ago and 1.5% lower than that in February 2019 (6%). The inflation was led by increase in transport and communication along with personal care and effects.
Table 1: Key components of Consumer Price Index (y-o-y growth %)
Core inflation (excl. food and fuel) moderated marginally by 10 bps to 4.1% in February 2020 compared with 4.2% in the previous month. It was lower than 5.3% core inflation in February 2019. The partial moderation across categories have led to moderation in the core inflation.
Rural and Urban Inflation
In February 2020, the rural inflation is estimated at 6.7% higher than 4.9% higher than the 1.8% inflation in the comparable month a year ago. Sustained high inflation in food, fuel and miscellaneous have led to higher inflation in the rural areas. The urban inflation at 6.6% was 3.1% higher in February 2020 as compared with 3.4% in February 2019. However, when compared with January 2020, the rural inflation has eased by 1.1% while the urban inflation has softened by 80 bps in February 2020.
Exhibit 3: State-wise Inflation
All 20 states have recorded higher inflation in February 2020 as against corresponding month a year ago.
10 out of the 20 states registered higher inflation than the national average (6.6%) with Telangana, Odisha, Uttar Pradesh and West Bengal witnessing more than 8% inflation rate during the month.
Among the states Chhattisgarh registered lowest 4.6% inflation among the states during the month of February 2020.
CARE Ratings’ View
We expect the retail inflation to moderate and be around 5.5% next month as the persistent decline in the food inflation and expected fall in fuel inflation owing to crash in the global crude oil prices which is likely to support the domestic inflation in March 2020.
Madan Sabnavis, Chief Economist
Dr. Rucha Ranadive, Economist
Rachna Gupta, Manager – Training