Some service companies see inflation cooling in May

NEW DELHI : While retail inflation is at record highs, with most products rising double digits, the services sector saw lower inflation rates in May compared to the start of the year.

Consumer Price Index data showed that most services such as beauticians, private tutors, coaching centers, hotels, photography, internet, cable television fees, rickshaws, transport, medical and hospital costs, signaled a moderation in inflation rates in May compared to January.

This could be explained by several factors, including a lag effect of the pass-through of goods inflation to the services sector. Additionally, with demand recovering, service providers may be cautious in passing cost pressure on to customers to remain competitive after two years of the pandemic. The high inflation base of certain services may also have contributed to the decline compared to the previous year.

Barber and beautician services saw inflation decline from 5.6% in January to 4.3% in May. Private tutoring and coaching centers fell from 3.92% to 1.95%. Hotel accommodation charges fell sharply from 12.3% to 0.06% during the period. Rickshaw fare inflation fell from 4.5% to 0.44%. Non-institutional medical spending inflation fell from 5.75% to 4.5%, and the domestic help and cook category saw inflation drop from 9.38% to 7.49%, according to segmented data from the CPI by the National Statistics Office. As a result, headline CPI inflation in May fell from an eight-year high of 7.79% in April to 7.04% in May.

“The weaker-than-expected services inflation momentum was a relief, as we expected higher demand to allow faster transmission to this segment. Nonetheless, we remain alert to evolving trends in this segment, as higher inflation in services will translate into persistent core inflation,” said Aditi Nayar, Chief Economist, ICRA Ratings. For some services, improved demand may also have generated higher supply. , to help control prices, while for others the base effect may be at play, she added.

For most goods, inflation has tightened since January, reaching double-digit levels in May.

Madan Sabnavis, Chief Economist, Bank of Baroda, said the moderation in inflation in some services may not be sustainable and could be due to “incentive pricing” being offered during the opening of businesses after the pandemic. In January, there was a tendency to refrain from increasing fees for fear that this would deter users… Normally, these are the “indicative prices” that are offered once a service is back in operation after the lock, which can be removed at any time.”

For some services, the moderation in inflation could be the result of a high base effect, Sabnavis said. “For example, the health services index peaked in May last year when the second wave took place. Therefore, the numbers seem lower now. This does not mean that health services become cheaper because these rates are never reduced.”

The exceptions in services reporting high inflation in May were tuition fees, cinemas and monthly maintenance fees. This could be attributed to the recent opening of services without any price changes over the past two years of covid-19. Schools opened physical classes in April after a two-year hiatus. Movie theaters also opened at full capacity after the Omicron wave receded.

Tuition inflation in schools and colleges rose from 2.89% in January to 4.19% in May. The rate of price increases for new movie releases on a normal day fell from 8.98% to 15.63% during the period. Similarly, the monthly inflation of maintenance costs rose from 3.27% in January to 12.95% in May.

Devendra Kumar Pant, Chief Economist, India Ratings, said services that opened earlier like beauty services, private tutoring, etc., are seeing moderation in inflation after seeing some price increases l ‘last year.

“Although the economy started to open up from 2021, some of the contact-intensive services such as educational institutions started to open to physical classes from the start of 2022. Most of establishments froze fees in 2020 and 2021 and only started revising fees after opening. for physical classes; as a result, retail inflation is elevated relative to services that opened earlier. Higher inflation for services that opened recently will continue for at least another six months,” Pant said.

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