Retail inflation readings took a sharp break last month 18-month low of 4.7%, with price gains reaching an eight-year high of 7.8% in April 2022 in no small measure from this fact. Based on the provisional Consumer Price Index (CPI), April showed a speed of 0.51% from the pace of 0.23% in March. Inflation also slowed in April due to a softening of year-on-year food price gains with the Consumer Food Price Index easing almost in lockstep with the broader index – a decline of 95 basis points from 4.79% in the previous month, at 3.84%. Oils and fats were a significant contributor, with prices falling by 12.3% last month from 7.86% in March. Besides, inflation in cereals, which has the highest weighting in the CPI at around 10%, declined by 160 basis points to 13.7% from 15.3% in the previous month.
However, a closer look reveals that prices rose sequentially in nine out of 12 subgroups of the Food and Beverages category, which contributes about 46% weight to the CPI basket. While vegetable prices remained in the deflationary zone, they registered a month-on-month inflation of 1.7% compared to a year ago. And fruit prices rose nearly 4% from March levels, even as year-on-year price gains halved to a 2.1% pace. What is worrying is that prices of pulses and products as well as sugar and confectionery saw a sharp rise in year-on-year and month-on-month inflation rates. With domestic production of pulses weak in the current crop year, the Center has already tightened monitoring of stocks of arhar and urad dal with traders to prevent hoarding and any attempt to inflate prices. It is also reportedly considering imposing more restrictions on sugar exports amid a reduction in production. To be sure, the base effect of last year, in addition to the Centre’s supply-side measures, is bound to ensure that headline retail inflation remains above the Reserve Bank of India’s upper tolerance limit of 6% during at least the current quarter. Not likely. Still, there is no room for complacency. Jayant Verma, a member of RBI’s monetary policy committee flagged last month, there are still two key risks to the inflation outlook – rising oil prices and uncertainty over monsoon. The rising likelihood of El Niño reflects the likelihood of erratic or even significantly deficient rainfall affecting food grain production, and policymakers cannot afford to let down their guard on inflation.