Inflation under 4%, but vegetable prices up again
- India’s retail inflation stayed under the Reserve Bank of India’s median target of 4% for the second successive month in August, even as it inched up marginally to 3.65% from an upwardly revised 3.6% in July.
Inflation Under RBI’s Target:
- India’s retail inflation remained below the Reserve Bank of India’s (RBI) median target of 4% for the second consecutive month in August 2024, marginally rising to 3.65% from 3.6% in July. This inflation rate is the second-lowest in five years, aided by base effects from 2023 when inflation stood at 6.8%.
Rural vs. Urban Inflation:
- Rural inflation stayed higher, increasing slightly from 4.1% in July to 4.16% in August.
- Urban inflation, in contrast, eased to 3.14%.
Food Inflation Trends:
- Food inflation rose to 5.7% from July’s 13-month low of 5.4%, crossing the 6% mark in rural areas.
- Tomato prices dropped significantly, down 47.9% year-on-year and 28.8% month-on-month, offering some relief.
- However, overall vegetable inflation surged to 10.7%, rebounding from 6.8% in July.
- Pulses inflation remained high at 13.6%, marking the 15th straight month of over 10% price rise.
Sectoral Price Movements:
- Spices saw a 4.4% drop in prices compared to August 2023.
- Cereals inflation eased from 8% to 7.3% in August.
- Eggs inflation increased to 7.14% from 6.8% in July.
- Inflation for personal care and effects fell to 7.94% from 8.44% in July.
Inflation Across States:
- Among the 22 states monitored by the National Statistical Office (NSO), seven recorded inflation rates higher than the national average:
- Bihar: 6.62% (highest)
- Odisha: 5.63%
- Assam: 5.03%
- Uttar Pradesh: 4.9%
- Haryana: 4.12%
- Kerala: 4.1%
Outlook on Inflation:
- Economists predict that inflation may spike in the coming months as base effects diminish. ICRA Chief Economist Aditi Nayar anticipates inflation rising to around 4.8% in September, with risks from above-normal rainfall and the development of La Niña conditions potentially driving up food inflation.
- The RBI had projected average inflation of 4.4% for the July-September quarter, but economists believe a rate of 6% is unlikely.
Monetary Policy Implications:
- With GDP growth underperforming the RBI’s estimate in the first quarter, a shift in the monetary policy stance is possible in October.
- However, some experts, like Madan Sabnavis, Chief Economist at Bank of Baroda, expect no changes until at least December 2024, as inflation trends will need to be more stable before any policy shift occurs.
Prelims Takeaways:
- National Statistical Office
- Consumer Price Index
- Inflation