Food price inflation which remained in double-digit territory for more than 19 months in a row has, of late, shown early signs of easing, but any salutary impact of this on the household budget of the average Indian could be more than offset by rising costs of essentials like house rent and medical and domestic services, official data indicate.
Retail inflation data (consumer price inflation-industrial workers) show that while annual inflation of tradables like food moved down by more than 3 percentage points this calendar year, that of non-tradable items has moved up by more than 4 percentage points.
?The country has not seen such a sharp spike in non-tradable inflation in recent times,? says India?s chief statistician Pronab Sen, adding ?I don?t think this is just a spill-over effect.?
Non-tradables comprise more than 39% of the consumption basket for industrial workers. CPI-IW is widely used to fix dearness allowances for central & state government employees and industrial workers. Thus, it has a fairly direct link to wage settlements and inflationary expectations. While CPI-IW has stayed above 10% for over 10 months, April figures show the index at 13.33%, below March?s 14.86%, thanks to the high base effect.
?Food prices have been a major source of inflation over the past few months; now, non-tradables like housing costs are rising rapidly,? says Tushar Poddar and Pranjul Bhandari of Goldman Sachs. ?Since the second half of 2009, both services and housing costs have risen sequentially. For instance, we estimate that housing costs have risen from 4% year-on-year at the end of 2008 to an estimated 16% now,? the Goldman Sachs economists point out. Interestingly, this 16% spike comes after after the impact of Sixth Pay Commission recommendations have worn off, which, if included would have led to an uptick of at least 33% in housing costs.
As per latest headline figures, May inflation at 10.16% was higher than April’s 9.59%. The government is expected to go for a hike in fuel prices once headline inflation figures show signs of easing.
The spike in non-tradable’ inflation might trigger another wage-price spiral. In the backdrop of uncertainties on the global front, the central bank?s inclination to target this spike through sharp hikes in key interest rates is also under doubt.
?RBI is not behind the curve by mistake but by choice, and they take into account many factors before taking a call on rates,? points out economist Suresh Tendulkar.