Inflation for November 2018 was at a ludicrously low 2.33%. This is largely from the base effect of a higher number in the previous year, though prices didn’t rise between October and November.
The main thing that changed was food inflation, which is now at a negative 1.7% as prices actually contracted! Of the remaining, we saw Housing and Clothing at a relative low. Fuel inflation moderated a bit from October, and other items were higher compared to earlier months.
Core Inflation came in lower at 5.67% meaning that the rising trend hasn’t continued. It’s now at the lowest level since March 2018. Core inflation is the inflation trend when you remove food and fuel from the index.
The fear is that food inflation is too low. However, we note that the main culprit is:
- Vegetables, where prices generally tend to be rising at this time of year. Prices are lower by 10% from the previous year. We have simply grown too much.
- Eggs: Prices of eggs are actually rising now But a spike in Nov/Dec last year takes inflation lower.
- Pulses: After the scary price rise two years back, we’ve seen much more planting, and thus prices are lower by 10% or so.
- Milk products: It seems here that the sharp rising trend of prices have moderated.
- Fruits: Here the trend continues to exist, but a base effect means inflation index is flat.
- Sugar: Prices have dropped to multi month low, but we have seen worse this year.
Here’s a graphic (click to expand) to see the impact of each food item.
There’s a reasonably good chance of more loan waivers for farmers, at this rate.
And there’s a reasonably good chance of a cut in interest rates too. This kind of inflation statistic – even if you removed food and fuel – shows us the economy isn’t actually seeing big inflation numbers. We should see action in January, hopefully.