Retail inflation of India has reached an over 5-year high level in the month of December 2019 but there are a few states that have suffered more than the others. The overall inflation rate stood at 7.35 per cent while it grew at a rate of 8.5 – 10 per cent in the states of Telangana, Odisha, Tamil Nadu, and Uttar Pradesh in the same month. Food inflation, led by a skyrocketing inflation rate of 60 per cent in the vegetable prices, is being held responsible for the surge of overall prices in India. Rising inflation at a much higher level than the RBI's benchmark may adversely affect growth and the spending capacity of the common people.
"Persistently high inflation adversely impacts the economy's allocative efficiency and impedes growth. It also contributes to a worsening of income distribution by depreciating the real income of the poor," RBI said in its January bulletin. However, the central bank also clarified that the relative emphasis on inflation and growth depends on the macroeconomic scenario, inflation and growth outlook, and signals emerging from incoming data.
While the economy is already under a prolonged pressure of a slowdown, rising inflation may further hit the government's effort to boost consumption in the domestic economy. India's economy is undergoing a phase of low demand, low consumption, and weak sentiment. The Reserve Bank has, however, said that it will continue to do whatever is necessary to deal with the multiple challenges of a growth slowdown, spikes of inflationary pressures and health of the domestic banking sector and NBFCs.
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Meanwhile, the major reasons for a hike in prices are due to a surge in the prices of cost of food and beverages (12.16 per cent); cereals (4.36 per cent), milk (4.22 per cent), vegetables (60.5 per cent), fruits (4.55 per cent), and pulses (15.44 per cent). The food inflation rate alone jumped to 14.12 per cent, the highest since November 2013.