India’s retail inflation stayed under the Reserve Bank of India’s median target of 4% for the second successive month in August, even as it inched up marginally to 3.65% from an upwardly revised 3.6% in July. August’s inflation pace is the second-slowest in five years.
Base effects from last year, when retail prices rose 6.8% in August, helped keep inflation growth in check yet again, but food inflation quickened from July’s 13-month low of 5.4% to 5.7%, and crossed the 6% mark in rural India. Overall, rural inflation stayed elevated compared to that faced by urban consumers, rising marginally from 4.1% in July to 4.16%, while urban inflation stood at 3.14% in August.
Costly vegetables
Tomatoes reported the sharpest drop in prices, which declined 47.9% year-on-year, and 28.8% on a month-on-month basis. The National Statistical Office said that India’s food inflation for August was the second lowest since June 2023.
Despite the respite in tomato prices, vegetables inflation shot back into double-digits to hit 10.7% after slipping to 6.8% in July. The price of spices fell 4.4% from last August, but pulses inflation stayed firm at 13.6%, marking the 15th straight month of 10%-plus price rise.
Inflation to spike
Economists reckoned the pace of price rise would resurge from this month, as the beneficial base effects would dissipate — the Consumer Price Index (CPI) was up 5% last September. The central bank had estimated an average inflation of 4.4% in the July to September quarter, but with the first two months averaging just 3.6%, that would mean an inflation pace of 6% in the ongoing month, which may be unlikely, economists said, even as they were divided on the prospects for near-term interest rate cuts.
“We anticipate a sharp pickup in the consumer price inflation to around 4.8% in September, and range between 4.4% and 4.7% in the second half of 2024-25,” said ICRA chief economist Aditi Nayar. She expressed wariness about the impact of above normal rainfall and the development of La Nina conditions which could pose upside risks to the food inflation trajectory in the near term.
With India’s GDP growth undershooting the RBI’s estimate of 7.1% in the first quarter, Ms. Nayar said that a change in the monetary policy stance could not be entirely ruled out in October. However, Bank of Baroda chief economist Madan Sabnavis said that the earliest point for a policy shift may not arise before December, as the central bank will look for inflation to stay low on a durable basis.
No relief for rural India
On a month-on-month basis, the CPI was flat in August, while the Consumer Food Price Index declined 0.44%. However, the rural food price index declined just 0.25% while urban food prices dropped 0.9% on a sequential basis.
The prices of fruits rose 6.5%, while inflation in eggs rose to 7.14% from 6.8% in July. Cereals provided some relief, with inflation easing from over 8% to 7.3% in August. Inflation in personal care and effects cooled to 7.94% in August from 8.44% in July.
Among the 22 States that the NSO calculates inflation rates for, just seven States outpaced the national average of 3.65%. Bihar clocked the sharpest inflation at 6.62%, followed by Odisha (5.63%), Assam (5.03%), Uttar Pradesh (4.9%), Haryana (4.12%), and Kerala (4.1%).
Published - September 12, 2024 05:51 pm IST
