 "TOP, precious metals accounted for 1/3rd of Oct inflation: CEA Nageswaran")
The recent spike in Consumer Price Index (CPI)-based inflation is heavily influenced by a select few commodities, Chief Economic (CEA) Adviser V Anantha Nageswaran said on Tuesday.
Nageswaran said that removing tomato, onion, potato (TOP), gold and silver from the calculation reveals a headline CPI rate of just 4.2 per cent in October. These items, which together account for a mere 3.4 per cent weight in the CPI basket, are responsible for contributing over one-third of the 6.2 per cent inflation rate observed in the month, he said.
Speaking at State Bank of India (SBI)’s annual business and economic conclave, the CEA said: “We know that CPI is being very much influenced by a few commodities. If you take out tomato, onion, potato, gold and silver, the headline CPI rate is 4.2 per cent… the items that constitute a 3.4 per cent weight, together account for more than one-third of the 6.2 per cent inflation rate we have seen for October.”
This year’s Economic Survey had suggested that India’s inflation-targeting framework should exclude food inflation, and Nageswaran highlighted that monetary policy is a short-run macro aggregate demand management tool, which cannot manage aggregate supply shocks and food shocks are predominantly supply shocks.
However, Reserve Bank of India (RBI) governor Shaktikanta Das had said with a high share of food in the consumption basket, food inflation pressures cannot be ignored by the monetary policy committee (MPC).
While talking about the potential return of the Trump-era tariffs, Nageswaran said that it could impact India-US trade dynamics, but the overall implications may not be entirely negative for India. While India maintains a bilateral trade surplus with the US, any new tariffs could create pressure to reduce duties in specific sectors, potentially enhancing competitiveness. However, with global export growth already under strain due to slowdowns in Europe and China, as well as the fading effects of US fiscal stimulus, India’s reliance on exports as a growth engine remains limited.
He highlighted that the broader impact of such a presidency may bring positive opportunities for India, particularly through policies that could help keep energy prices affordable. While challenges may arise, the net impact could lean toward being more favorable than adverse, the CEA said.
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Nageswaran also said that it is premature to conclude that the slowdown in urban consumption is going to be sticky and persistent. He said while some indicators, such as slowing FMCG volumes, suggest caution, others like robust EPFO net subscription growth, strong PMI indices, and stable e-way bill transaction volumes do not point to a broad-based slowdown. This mixed set of data makes it challenging to label the slowdown as either transient or persistent.
He further said that the dual policy focus on promoting private transport and incentivising specific crops like paddy and wheat in the agricultural sector has contributed significantly to India's air quality challenges.
“The massive encouragement we have given to private modes of transport and the policies with respect to the farm sector, which have incentivised only food grains, paddy and wheat, and not other agricultural products, have combined to play this role in terms of keeping our air quality somewhat on the lower side,” he said.
While talking about growth, he said the next four years will be crucial for India in maintaining affordable energy prices, a factor integral to sustaining economic growth rates of 6.5 per cent to 7 per cent.
“Next four years might be very important from the Indian standpoint in terms of keeping energy prices affordable, and that's very critical. If we have to sustain the growth rates of between 6.5 per cent and 7 per cent, having affordable energy prices is very important,” Nageswaran said.