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Projection of retail inflation turns erratic amid pandemic

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The projection of CPI inflation has turned erratic amid the pandemic due to changing consumer spending behaviour, according to a report by the State Bank of India (SBI).

The report noted that the average difference between actual consumer price index (CPI) and the projections was low, while it has increased amid the pandemic.

“This inaccuracy is primarily due to changing consumers spending behaviour during Covid-19,” it said.

India’s spiked in September to 7.34 per cent from 6.69 per cent in August. High inflation rate has forced the Reserve Bank of India to keep the repo rate unchanged in its latest monetary policy meet.

The RBI anticipates inflation to remain elevated, although it may somewhat soften in winter.

As per the report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, the recovery in GDP has been led by manufacturing along with components of the services sector including trade, hotels, transport and communication.

“This is quite obvious given the movement of freight traffic in Q2 during Nov’20, business activity index shows persistent modest improvement in economic momentum,” the report said.

The nominal GDP loss narrowed down to Rs 2.0 lakh crore in Q2 FY21 from a staggering Rs 11.10 lakh crore in Q1. Manufacturing has minimised its losses by 91 per cent from Q1. The services sector has reduced its losses by 43 per cent, while the losses incurred by the trade sub-segment have fallen by a staggering 80 per cent.

In November 2020, weekly food arrival data shows increase in arrival of cereals and vegetables to some extent. However, pulses and fruits witnessed decline in arrival after a modest improvement in October 2020.