Retail inflation spiked to a 15-month high of 7.44 per cent in July as tomatoes, vegetables and other food items turned costlier, overshooting Reserve Bank’s comfort level for the first time in the current fiscal.
The Reserve Bank of India (RBI) has the mandate to keep retail inflation in the range of 2 to 6 per cent and after remaining above the upper limit for most of the 2022-23 financial year, inflation was in the central bank’s comfort zone this fiscal till June.
Official data released on Monday showed that the Consumer Price Index (CPI) based inflation surged to 7.44 per cent in July, much higher than 4.87 per cent in June.
Retail inflation stood at 6.71 per cent in July 2022 and the previous high was recorded at 7.79 per cent in April 2022.
The CPI-based inflation in the food basket was at 11.51 per cent in July, significantly up from 4.55 per cent in the preceding month, and 6.69 per cent in July 2022, according to the data released by the National Statistical Office (NSO).
In July, the annual inflation in the vegetables basket was at 37.44 per cent, spices at 21.63 per cent, pulses and products at 13.27 per cent, and cereals and products at 13 per cent.
The food and beverages segment together contribute about 54 per cent of the overall CPI.
However, the rate of price rise in oils and fats segment declined 16.8 per cent. The inflation in meat and fish, egg and fruits was in lower single digit, as per the data.
While unveiling the bi-monthly monetary policy last week, RBI Governor Shaktikanta Das had warned of a substantial increase in headline inflation in the near-term and revised upwards the inflation forecast for the second quarter to 6.2 per cent.
The retail inflation was in the RBI’s comfort zone from March to June this year.
According to Aditi Nayar, Chief Economist at rating agency ICRA, given the CPI inflation print for July, the RBI’s revised forecast for inflation for Q2 FY2024 of 6.2 per cent appears to be at risk of being overshot as the vegetable price shock may not reverse adequately before the next harvest.
Moreover, rainfall has been deficient in August so far, which is likely to put upward pressure on food prices, amid the lags in kharif sowing across some crops, she said.
As per the NSO data, the retail inflation in the rural areas was 7.63 per cent and in urban India 7.2 per cent, taking the combined CPI to 7.44 per cent.
NSO collects the price data from selected 1,114 urban markets and 1,181 villages covering all States and Union Territories.
During July 2023, NSO collected prices from 99.5 per cent villages and 98.5 per cent urban markets while the market-wise prices reported therein were 88.6 per cent for rural and 92.2 per cent for urban.
Meanwhile, wholesale price inflation remained in the negative territory for the fourth month in a row in July at (-) 1.36 per cent, even though prices of food items, especially vegetables, skyrocketed.
The inflation, however, has inched up from (-) 4.12 per cent recorded in June fuelled by 62.12 per cent rise in vegetable prices.
In July last year, wholesale price index (WPI) was 14.07 per cent.
