Demonetisation pulls retail inflation to 2-year low of 3.63pc

Retail inflation fell to a two-year low of 3.63 percent in November following the Centre's demonetisation drive that led to lower consumer spending on various food items including vegetables. This is the lowest level since November 2014 when the retail inflation was recorded at 3.23 percent.

The Consumer Price Index-based inflation stood at 4.20 percent in October, the data released by the Ministry of Statistics and Programme Implementation showed. Prices of vegetables declined by 10.29 percent during the month, while other essential food items like pulses, egg, meat and poultry products too turned cheaper due to weak demand amid cash crunch.

The decline in CPI inflation primarily reflects a favourable base effect and to a smaller extent subdued demand after the note ban, ratings firm ICRA said.

Aditi Nayar Principal Economist at ICRA,

The dearth of cash is likely to have hindered price discovery at the mandi level. Following demonetisation, food prices are likely to have fallen more sharply at the wholesale level than at the retail level, which saw a sequential moderation of 0.7 per cent. Therefore, we expect a sharper correction in WPI inflation in November 2016 compared to CPI inflation.

Among others price points covered, fruit prices remained stable with inflation print of 4.60 percent during the month, slightly up from October's 4.42 percent. Cereals and products price went up by 4.86 percent, a tad up from 4.40 percent in October. Protein rich meat and fish had inflation print of 5.83 percent in November as against 6.16 percent in October. Egg prices witnessed 8.55 percent rise as against 9.42 percent in the previous month.

Overall, the Consumer Food Price Index was down at 2.11 percent compared with 3.32 percent in October. The CPI-based inflation in fuel and light segment was at 2.80 percent in November as against 2.81 percent a month ago.

Soumya Kanti Ghosh, Chief Economic Adviser & GM, Economic Research, SBI said,

We have estimated due to demonetisation there would be 40 bps decline in inflation in November and 20 bps in December. So, on an average a 30 bps (0.3 percent) downward impact on inflation could not be ruled out.

Rural retail inflation stood at 4.13 percent in November compared with 4.78 percent in October, showed the data. For urban sector, it was recorded at 3.05 percent as against 3.54 percent in the previous month.

Demand in the economy has been drained from over a month since government's move to scrap old Rs 500/1000 notes with only need-based purchases being done by consumers because they continue to remain mostly cash-strapped as supply of new currency is not adequate to meet public demand.

Also read : Lok Sabha passes bill to tax black money post-demonetisation 

Prime Minister Narendra Modi's surprise announcement on November 8 to scrap these high value notes has nearly suck out 86 percent of the total cash in circulation, leaving little cash at hands for disposal.