Return of the protein inflation? Cereals the new leader?
CPI inflation for Jan-23 came in at 6.52%. Retail inflation has remained above the RBI’s threshold of 6% for 8 out of 10 months of the fiscal so far. More than 50% of the CPI basket witnessed an inflation of 6% or higher in Jan-23.
| Category | Weight in CPI basket | Inflation in Jan-23 |
|---|---|---|
| Cereals and Products | 10% | 16% |
| Fuel and Light | 7% | 11% |
| Personal Care and Effects | 4% | 10% |
| Clothing and Footwear | 7% | 9% |
| Milk and Milk Product | 7% | 95 |
| Egg | 0% | 9% |
| Prepared Meals, Snacks, Sweets, etc | 6% | 8% |
| Household Goods and Services | 4% | 7% |
| Health | 6% | 4% |
| Meat & Fish | 4% | 6% |
Among the broad categories, food witnessed the highest jump in inflation at 5.9% vs 4.2% in the previous month. Inflation in cereals has averaged 10.0% in the fiscal so far. Within cereals, rice, wheat and their products have been the key drivers of high inflation. Global wheat prices spiked after Russia invaded Ukraine in Feb-22. This led to a spike in wheat exports from India, until exports were banned in May-22. According to the first advanced estimate, FY23 Kharif rice production is down 6% compared to FY22. In its bid to control domestic inflation and ensure food security, the government also banned the exports of broken rice and levied an export tax on several varieties starting Sept-22. Wholesale mandi prices of rice and wheat have remained 59%, and 27% above the MSP respectively.
Milk inflation too has averaged 7.0% in FY23, led by decreased production, increased feed prices and higher exports. Inflation in meat and eggs too jumped in Jan-23, but on an average has remained within acceptable limits in the fiscal so far. Could this be the return of the protein inflation of 2012 and 2013, coupled with cereals?
CPI inflation has averaged 6.8% so far and is likely to close the fiscal averaging ~6.5%. Core inflation has remained sticky around the 6% mark for 6 months now. Global commodity prices have come off their highs of last year. Transmission of past rate hikes and a high base of this fiscal will bring down CPI inflation within RBI’s limit in FY24.
*Source: CMIE
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Team:
Anuj Agarwal, Chief Economist
Ria Rattanpal, Research Associate
Team:
Anuj Agarwal, Chief Economist
Ria Rattanpal, Research Associate
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