Inflation eases to 6.71% on vegetable, edible oil

India’s inflation rate declined for the third consecutive month to reach 6.7% in July, according to data released by the National Statistical Office (NSO) on Friday.

While the latest inflation reading will bring to relief to the policy makers, as inflation seems to have peaked, the headline inflation number continues to be above the upper limit of the central bank’s tolerance band of 6%.

In June, retail inflation was at 7.01 per cent and it stood at 5.59 per cent in July 2021.

According to the data, food inflation in July 2022 moderated to 6.75 per cent as against 7.75 per cent in June.

The Consumer Price Index ( CPI) based retail inflation, however, remained above the Reserve Bank of India’s upper tolerance level of 6 per cent. It has remained above the 6 per cent mark for the past seven months.

The July inflation fell below the 7% first time in 3 months on the back of lower rise in food prices

July retail inflation

June retail inflation

July food inflation

June food inflation

Retail inflation in July, 2021

In the first three months of the current fiscal, retail inflation remained above 7 per cent

While the July inflation was in line with economists’ expectations, experts believe that the inflation is likely to hover over the central bank’s upper limit ogf 6% till at least January 2023.

BEYOND RBI’S TOLERANCE: This month’s retail inflation stood above the central bank's tolerance band of 2%-6% for the seventh month in a row.

“CPI headline inflation for July has moderated in line with our expectations, led largely by food inflation, while the core inflation remains elevated and sticky.”

“The coming few readings are expected to be a tad above 7% with inflation likely to hover above RBI’s upper threshold limit of 6% until January 2023. We expect repo rate at 6% by end of 2022, followed by a pause and a shift to neutral policy stance,” Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.

Aditi Nayar, chief economist at ICRA Ltd said, “Given the base effects, we caution that the next two CPI inflation prints could rise slightly from the 6.7% seen in July 2022, in spite of which we believe that the average inflation for the ongoing quarter will modestly trail the MPC’s projection of 7.1%.”

“Given the MPC’s focus on anchoring inflation expectations and the governor’s statement on inflation moving closer to the target of 4.0% over the medium term, we expect another rate hike of ~10-35 bps in the September 2022 policy meeting. Thereafter, we believe the MPC is likely to be extremely data dependent.”

On the markets’ front, Indian shares extended gains from pre

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