Retail inflation eases to a 5-month low in July
Inflation has stayed above RBI’s upper limit of 6% for the 7th month in a row
India’s retail inflation eased to a five-month low in July to led by moderation in food prices on the back of improved supplies of vegetables and easing edible oil prices, falling below the 7% mark for the second straight month, official data showed. It has remained above the Reserve Bank of India’s (RBI’s) upper tolerance band of 6% for the seventh month in a row.
Economists caution that the inflation will likely inch up over the next couple of months because of the low base of last year even as easing of energy and commodity prices globally would help cool inflationary pressures. Nevertheless, further rate hikes by the RBI’s monetary policy committee (MPC) are expected over the next few months.
The RBI has projected inflation for 2022-23 at 6.7%.
Inflation based on the consumer price index (CPI) eased to 6.71% in July from 6.89% in the previous month, according to data released by the ministry of statistics and programme implementation on Friday. Inflation for June was revised lower to 6.89% from 7.01%, estimated earlier.
“Fears of a global recession and fresh geopolitical uncertainties have led to a correction in commodity prices from the peaks seen in mid-June 2022, which bodes well for easing domestic input cost pressures and the core-CPI inflation in the next few months,” said Aditi Nayar, chief economist, ICRA. In contrast, the robust domestic demand for services poses risks, given its significant share in the CPI basket (of 23.4%) and hence, remains a key monitorable, along with the significant lag in kharif sowing of rice, she said. Nayar cautioned that given the base effects, the next two CPI inflation prints could rise slightly from the 6.7% seen in July 2022, despite which “we believe that the average inflation for the ongoing quarter will modestly trail the MPC’s projection of 7.1%”.
The moderation in CPI inflation was led by easing of food inflation to 6.71% in July from 7.56% in June.
The consumer food price index, which includes both manufactured and non-manufactured food articles showed inflation easing to 6.75% from 7.75% in the previous month. Inflation in case of vegetables eased to 10.9% in July from 17.37% in the previous month. Edible oil inflation moderated to 7.52% from 9.36% in June. The rate of price rise in fruits, however, rose to 6.41% from 3.1% in the previous month.
“The near-term inflation outlook remains highly uncertain, as the uneven nature of this year’s monsoon and a weak rupee currency may lessen the effectiveness of government efforts to contain consumer price increases,” said D. R. E Reddy, chief executive officer and managing partner, CRCL LLP.
Fuel inflation rose to 11.76% from 10.91% in the previous month.
Brent crude oil prices eased to $99 per barrel on Friday and have declined by 20% over the last two months amid recession fears and declining demand.