India’s retail inflation rate surged to a 15-month high of 7.44 per cent in July 2023, primarily driven by a rise in prices of vegetables, cereals, pulses, spices and milk and products, data released by the National Statistical Office (NSO) on Monday showed.
The inflation print had last breached the 7 per cent mark in September 2022 and the previous high for the headline retail inflation rate was recorded at 7.79 per cent in April 2022.
This is the third instance of retail inflation rate crossing the upper limit of the 4+/- 2 per cent band of Reserve Bank of India’s medium-term inflation target in this calendar year and seventh instance since July 2022. The RBI mainly factors in the retail inflation while deciding the benchmark interest rate (repo rate).
Food prices, especially of vegetables and cereals, pushed up prices at the wholesale level also, with the wholesale price index-based inflation rising to (-)1.36 per cent in July from (-)4.12 per cent in June even though on a year-on-year basis it continued to remain in the deflationary zone for the fourth consecutive month, separately released data by the Ministry of Commerce and Industry on Monday showed.
The sharp increase in inflation has come amid the RBI keeping the key repo rate unchanged at 6.50 per cent in its latest monetary policy review last week. While the six-member MPC, led by RBI Governor Shaktikanta Das, retained the policy stance as ‘withdrawal of accommodation’, it hiked the inflation projection from 5.1 per cent to 5.4 per cent for FY2024 in the wake of high food inflation, signalling that a rate cut is unlikely in the near future.
As per the RBI projection, inflation is expected to remain above 5 per cent till the first quarter of 2024-25 and is likely to hit the 6.2 per cent level in the ongoing quarter (July-September).
Consumer Food Price Index (CFPI) recorded an inflation rate of 11.51 per cent in July as against 4.55 per cent a month ago and 6.69 per cent a year ago. Food and beverages, which accounts for 45.86 per cent of the overall consumer price index (CPI), recorded an inflation rate of 10.57 per cent in July as against 4.63 per cent in June. The inflation rate for cereals and products (weight of 9.67 per cent) increased to 13.04 per cent year-on-year in July from 12.71 per cent in June, while that for vegetables (weight of 6.04 per cent) jumped to 37.34 per cent in July from (-)0.93 per cent in June. The retail inflation rate in July was 13.27 per cent in case of pulses and products, 8.34 per cent for milk and products, 13.04 per cent for cereals and products, 21.63 per cent for spices, 5.51 per cent for prepared meals, snacks, sweets etc., and (-)16.8 per cent for oils and fats.
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Retail inflation in the fuel and light category was lower at 3.67 per cent in July from 3.92 per cent in the previous month, while that for housing eased to 4.47 per cent from 4.56 per cent.
Immediate reversal unlikely
Deficient rainfall in August so far is likely to put pressure on vegetable prices and an immediate reversal in prices may not be possible until next harvest. The price rise may still not warrant a rate hike by RBI — a pause is likely.
Core inflation — the non-food, non-fuel segment — eased to a 21-month low of 5.1 per cent in July 2023, as per estimate by ICRA. The overall retail inflation rate in July was higher at 7.63 per cent in rural areas than 7.20 per cent in urban areas, even though food inflation for rural areas was at 11.04 per cent, lower than 12.32 per cent in urban areas. Of the 22 states/UTs for which data is available, a dozen states recorded higher-than-average retail inflation rate in July, with the highest inflation rate seen in Rajasthan (9.66 per cent), followed by Jharkhand (9.16 per cent), Tamil Nadu (8.95 per cent), Odisha (8.67 per cent) and Uttarakhand (8.58 per cent).
At the wholesale level, the food index recorded a 7.75 per cent inflation rate, led mainly by a 62.12 per cent spike in vegetable prices. Fuel and power basket inflation moderated to (-)12.79 per cent in July from (-)12.63 per cent in June. In manufactured products, the inflation rate was (-)2.51 per cent as against (-)2.71 per cent in June.
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Experts said inflation rate is expected to stay above the 6 per cent mark in the coming months and may prompt an upward revision in the 6.2 per cent projection by the RBI for the second quarter.
“Given the CPI inflation print for July 2023, the MPC’s revised forecast for inflation for Q2 FY2024 of 6.2% appears to be at risk of being overshot, as the vegetable price shock may not reverse adequately before the next harvest. Moreover, rainfall has been deficient in August so far, which is likely to put upward pressure on food prices, amid the lags in kharif sowing across some crops. The MPC’s latest forecasts suggest inflation will remain above 5% through Q1 FY2025, based on which we have pushed out our forecast for the earliest cut to Q2 FY2025…in our view, inflation would need to persist above 6.0% for at least two quarters, amid transmission of pressures to core inflation, to set the stage for a rate hike,” Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA said.
Retail inflation in July jumps to 7.44%, breaches RBI’s tolerance limit - The Indian Express
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