'Food prices seen staying sticky, may keep inflation at about 7% in Q3 too’

• The poor are facing a higher inflation burden due to the surge in food prices, especially for items like cereals and vegetables, which are unlikely to cool off soon owing to unseasonal rainfall and lower Kharif crop sowing, according to economists.

What does the Data Say?

• Urban India’s poorest households - Those in the bottom 20% income bracket - faced as much as 8.1% inflation in September
• Those in the top 20% income segment experienced a far lower 7.2% inflation, Crisil Ratings estimated in a report.
• Rural India’s Poorest household - Those in the lowest income bracket in rural areas faced 7.8% inflation last month, compared with 7.3% for the top 20% income households.

Food inflation

• Food inflation soared to a 22-month high of 8.4% in September, lifting India’s retail inflation to a five-month high of 7.4%.
• Cereals inflation hit a 108-month high at 11.5%
• Wheat clocked double-digit inflation since June and hit 17.4% in September
• Rice surged to 9.2% from 6.9% in August.
• Vegetable inflation quickened to 18.1% last month from 13.3% in August.

Conclusion

• SBI expects high cereal and vegetable prices to persist in view of the high unseasonal rains in cereal producing States
• Expects the higher food inflation to spur the overall inflation average in the last quarter to about 7% - compared with 6.5% projected by the Reserve Bank of India.
• Goldman Sachs also cautioned on upside risks to food inflation and said fuel inflation would rise in light of the recent increase in natural gas prices.

Prelims Take Away

• Inflation
• Types of Inflation