Retail inflation rose to 19-month high to 4.45%in July from 4.38%in June, primarily due to the rise in the food inflation, shows the data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Wednesday. Food inflation, measured by the Consumer Food Price Index, went up by 5.52%in July from 5.32%in June, indicating renewed pressure from food items.
Despite touching a 19-month high, inflation remained well within the target band of 6% of the Reserve Bank of India (RBI). However, it breached the central bank’s medium-term inflation target of 4%. Inflation had crossed the RBI’s target in June after remaining subdued for a prolonged period.
While the urban inflation at 3.96%, the surge is more pronounced in rural areas, where headline inflation rose to 4.84%. Within the food basket, prices of ginger rose the highest as it went up by 83.62%year-on-year in July, while garlic prices increased 35.36%. However, potato prices remained in deflation at 16.56%.
“A favourable base effect, reflecting last year’s spike in vegetable and edible oil prices, capped the upside to food inflation,” says Dipti Deshpande, Senior Director and Principal Economist Crisil Ltd. However, she says that uneven monsoon conditions continue to cloud the food inflation outlook, although the relationship between rainfall and food prices has weakened in recent years due to active government intervention in food markets during episodes of price spikes.
The food and beverages category recorded inflation of 5.24%in July. Inflation has been the highest in personal care, social protection and miscellaneous goods and services as it rose by 14.77 %.Housing inflation remained relatively controlled at 2.22%.
The Indian crude basket has averaged around 42% higher year-on-year so far this year. “Although retail fuel prices have risen only moderately, transportation cost for producers has increased sharply. According to wholesale price data, transport-related inflation rose to around 46% during April-June. A significant portion of this increase is likely to be gradually passed through to retail prices,” says Deshpande of Crisil.
According to Debopam Chaudhuri, chief economist, Piramal Group, inflationary pressures in India remain broadly contained despite elevated wholesale price inflation driven by a weaker rupee and higher energy costs.
“This stands in contrast to several major economies, including the US, where inflation continues to remain well above central bank comfort levels. The relatively benign inflation outlook should provide the RBI with additional room to maintain the policy rate at its October meeting,” he said.
