Attributing the rise in food prices to restrictions imposed by several states during April-May to deal with the second wave of COVID-19, Chief Economic Adviser K V Subramanian said food inflation is likely to moderate on account of the twin impact of opening up of economic activities and good monsoon.
Moreover, the Chief Economic Adviser (CEA) asserted that high food inflation has not impacted a large section of population as they are being given free ration under the Pradhan Mantri Garib Kalyan Yojana.
Talking about the effect of rising petrol and diesel prices on retail inflation, Subramanian said it will not be significant as the weightage of fuel and light category in the Consumer Price Index (CPI)-based inflation is just 7.94 per cent.
He added that an analysis done by the Reserve Bank of India (RBI) suggests that the first order and second order effects of fuel price rise are almost similar in magnitude.
The first order impact refers to the direct impact of rising fuel prices on the price index, while second order impact indicates the cascading effect on other items, leading to price escalation.
Rising prices of edible oils and protein rich items pushed the retail inflation to a six-month high of 6.3 per cent in May.
The government has asked the Reserve Bank to keep the retail inflation at 4 per cent with a margin of 2 per cent on either side.
CPI inflation has breached the upper band of the inflation target about 10 times since the first meeting of the Monetary Policy Committee (MPC), which decides the key interest rate, in October 2016.
Wholesale price-based inflation too accelerated to a record 12.94 per cent in May on account of rising prices of crude oil, manufactured goods and the low base of last year due to the COVID-19 lockdown.
While the CPI-based inflation rose from 4.23 per cent in April to a six-month high of 6.3 per cent, food inflation soared from 1.96 per cent to 5.01 per cent in May. The previous high in retail inflation was 6.93 per cent in November 2020.
As per the data on CPI, factored in by the RBI while arriving at its monetary policy, the steepest price rise was witnessed in the ‘oils and fat’ segment, which on an annual basis showed an increase of 30.84 per cent.