Why continued food inflation fall may not be good for Modi government

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Published: February 14, 2019 1:56:52 PM

The continued fall in food inflation has been the main reason behind the Consumer Price Index (CPI) inflation being so low that even the Reserve Bank of India (RBI) was prompted to slash benchmark rates and change stance from ‘calibrated tightening’ to ‘neutral.’

WPI, CPI, wholesale inflation Index, WPI in january, food inflation, potato, onion, fruits, milk prices, थोक महंगाई दर, थोक महंगाई, डब्ल्यूपीआई, खुदरा महंगाई, रिटेल महंगाई, खाद्य महंगाई, जनवरी 2019 में थोक महंगाई दरWhile retail inflation fell to 19-month low of 2.05 per cent, wholesale inflation for January was recorded at a 10-month low of 2.76 per cent.  (Image : Reuters)

The continued fall in food inflation has been the main reason behind the Consumer Price Index (CPI) inflation being so low that even the Reserve Bank of India (RBI) was prompted to slash benchmark rates and change stance from ‘calibrated tightening’ to ‘neutral.’

“Such an extended phase of low food inflation or even deflation is, perhaps, unprecedented in the country’s history. The implications of it are both economic and political,” wrote Harish Damodaran in The Indian Express.

While retail inflation fell to 19-month low of 2.05 per cent, wholesale inflation for January was recorded at a 10-month low of 2.76 per cent.

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Comparing two periods – April 2014 to August 2016 and from September 2016 to January 2019 – the writer said, “Retail food inflation stood below general CPI inflation in only six out of the 29 months – namely November 2014, December 2014, May 2015, July 2015, August 2015 and September 2015. But in the second period, there has not been a single month where consumer food inflation has exceeded general CPI inflation.”

He added that out of seven of these 29 months, the yearly rise in the consumer food price inflation (CFPI) has been negative, implying consumers are paying less than the year ago period.

He further said that the Modi government faced criticism after May 2017 when the farmers planted the rabi crop post “just after demonetisation was getting marketed.” The food inflation slipped into negative territory in three months from May 2017 to July 2017.

“A similar episode of negative food inflation has been witnessed since October 2018, which led to the ruling party Bharatiya Janata Party tasting defeat in Assembly elections in Madhya Pradesh, Rajasthan and Chhattisgarh. If this trend in food prices holds in the coming months, too, it may not bode well for the Lok Sabha polls either,” he noted.

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