NEW DELHI: Five days after Finance Minister Nirmala Sitharaman claimed inflation was within manageable levels and that it no longer was a ‘red lettered’ priority, government data released on Monday showed that retail inflation shot up to 7% in August.
The spike, according to data by National Statistics Office, was aided by the sharp rise in the prices of cereals (9.6% up year-on-year) and vegetables (13.33%).
Retail inflation, as measured by the Consumer Price Index, had fallen below 7% in July to 6.71%, giving hope that the Reserve Bank of India’s aggressive policy stance may have succeeded in reining in the price rise.
However, the August numbers indicate that RBI may have to continue its tight monetary policy.
This is the eighth consecutive month that inflation has stayed above RBI’s higher tolerance level of 6%.
The finance ministry attributed the uptick in August numbers to an adverse base effect and an increase in food and fuel prices.
The ministry claimed the results of its measures to control inflation, such as a ban on exports of food products and rationalisation of tariff structure of industrial raw material, will show results in the coming weeks and months.
Overall food inflation in August saw a sharp increase of 7.6% compared to 6.7% in July. Non-food inflation marginally fell to 6.6% in August from 6.7% in July.
Analysts attribute high cereal prices to wheat inflation after early heat waves hit production. Now, the government predicts lower rice output due to deficient monsoon in rice-growing areas.
“The sharp jump in food inflation suggests price pressures remain.” says Dharmakirti Joshi, chief economist, CRISIL Ltd.
CPI inflation was 6.71 per cent in July and 5.3 per cent in August 2021.
As per the data released by the National Statistical Office (NSO) on Monday, the inflation in the food basket was 7.62 per cent in August, up from 6.69 per cent in July and 3.11 per cent in August 2021.
On an annual basis, the rate of price rise was in excess of 10 per cent in the case of vegetables, spices, footwear, and 'fuel and light'.
However, there was a contraction in inflation in egg and almost flat in protein-rich' meat and fish' in August.
Inflation had touched a high of 7.79 per cent in April before declining to 7.04 per cent in May.
It touched 7.01 per cent in June and further decelerated to 6.71 per cent in July.
The government has tasked RBI to ensure CPI inflation remains at 4 per cent with a margin of 2 per cent on each side.
The RBI Governor-headed Monetary Policy Committee (MPC) is scheduled to be held from September 28 to 30.
The key short-term lending rate (repo) has been raised by 140 basis points in three tranche since May this year.
The last two hikes were 50 basis points each.
Aditi Nayar, Chief Economist with ICRA, said the sequential hardening in inflation was largely driven by a broad-based rise across the food segment, with higher inflation in cereals, pulses, milk, fruits, vegetables, and prepared meals and snacks.
"We now foresee a higher likelihood that the MPC will stick to the new normal rate hike of 50 bps in its September 2022 meeting, with the headline inflation having reversed to 7 per cent in August 2022" she said.
Former RBI Executive Director and MPC Member Mridul Saggar said inflation is continuing to be higher than comfortable but is expected to trend down from October.
"With some more rate hikes, the problem of negative real deposit rates can be addressed. Inflation could trend down from October due to base effects, lagged impact of monetary policy tightening and expected improvement in supply chains," he said.
Currently, Saggar is IEPFA Chair Professor at NCAER.
NSO said the price data were collected from selected 1,114 urban markets and 1,181 villages covering all States/UTs.
Narender Wadhwa, President of the Commodity Participants Associations of India (CPAI), said that retail inflation rising to 7 per cent is worrisome.
"This figure may pressurise RBI to hike rates more aggressively to tame surging prices even at the cost of the economy," he said and added that inflation is a global phenomenon and all countries are grappling with it.
As per the data, the retail inflation in rural and urban India was 7.15 per cent and 6.72 per cent, respectively.
The inflation was above 8 per cent in West Bengal, Gujarat and Telangana.
(With PTI Inputs)
