NEW DELHI: In a relief to the common man as well as policymakers, retail inflation seems to have begun moderating as the headline inflation rate measured by the Consumer Price Index (CPI) eased to 6.71% in July from 7.01% in June. It is for the first time since April 2022 that retail inflation has fallen below the 7% level.
The lower figure in July was largely driven by the easing of prices of food and beverage and miscellaneous items. While housing, pan, tobacco and intoxicant prices showed moderate growth, that of clothing and fuel continued to expand sharply year-on-year.
On a month-on-month basis, however, vegetable prices fell marginally as the food and beverages index remained flat, also benefiting from corrections in prices of edible oils, meat and fish. The drop in inflation in July was on expected lines as fears of global recession and fresh geopolitical uncertainties led to a correction in global commodity prices, easing the domestic inflation pressure.
However, analysts and economists warn against letting the guards down on inflation. “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 RBIs upper threshold limit of 6% until January 2023,” said Upasana Bhardwaj, chief economist, Kotak Mahindra Bank.
The Reserve Bank of India (RBI) in its August monetary policy statement retained its inflation projection for 2022-23 at 6.7%. RBI is mindful of the fact that spillovers from geopolitical shocks are imparting considerable uncertainty to the inflation trajectory. The central bank also said that it is watchful of the shortfall in paddy sowing.
However, analysts believe that there would be no pause in rate hikes. Aditi Nayar, chief economist of ICRA, expects another increase of 10-35 bps in the September 2022 policy meeting.