Retail inflation based on Consumer Price Index is believed to have eased further in August. The estimate is hovering between 3.2 and 3.6 per cent. The government will make the retail inflation number public on Thursday at 5.30 pm.

Retail inflation dropped to a 59-month low of 3.54 per cent in July mainly on account of lower vegetable prices. If the number remains below 4 per cent in August, it will be the second time after September 2019 when headline number had gone below the median rate of targeted inflation range for two or more successive months. The targeted range is 2 to 6 per cent and median rate is 4 per cent.

However, despite two months of sub 4 per cent inflation, a policy rate cut by Monetary Policy Committee (MPC) is considered unlikely in its forthcoming meeting next month. Also, it is expected that ‘withdrawal of accommodation’ monetary policy stance might continue for some more time. It may be noted that MPC kept the repo rate unchanged at 6.50 per cent for nine consecutive meetings till August.

Food prices down

In August, barring onion, vegetable prices continued to slide as did edible prices and also domestic LPG. In its latest update of ‘Roti Rice Rate’, Crisil said that in August, prices of tomato declined 51 per cent on-year (from ₹102 per kg in August 2023 to ₹50 per kg in August 2024) due to fresh arrivals from southern and western states.

Moreover, prices of vegetable oil, chilli and cumin eased by 6 per cent, 30 per cent and 58 per cent year-on-year respectively. However, an y-o-y uptick of ₹15 per kg and ₹13 per kg in onion and potato retail prices respectively due to lower rabi arrivals capped the decline in overall vegetable prices. All these have an impact on headline inflation as well as food inflation. At the same time, there was 27 per cent drop in fuel cost – to ₹803 for a 14.2 kg LPG cylinder in Delhi in March 2024 from ₹1,103 in August 2023 will also have some impact on overall inflation.

Positive outlook

According to economists, although food prices, which make up nearly half the inflation basket, have eased significantly in the last two months, erratic monsoon rains across India could harm crop yields and push prices higher in coming months. Still, a Finance Ministry report is hopeful of positive outlook.

According to latest edition of the Monthly Economic Review, prepared by Economic Affairs Department, with moderate core inflation and positive progress in monsoon, the headline inflation outlook is positive. Assuming a normal monsoon, CPI inflation for FY25 is projected at 4.5 per cent by the RBI, with Q2 inflation at 4.4 per cent.

In its August 2024 meeting, the Monetary Policy Committee of the Reserve Bank of India decided to keep the policy repo rate unchanged at 6.5 per cent, reiterating the need to continue with the disinflationary stance of withdrawal of accommodation, initiated first in April 2022, to ensure that inflation progressively aligns with the target while supporting growth, the report added.

Related Topics