Overview: India’s retail inflation witnessed a significant surge in July, reaching 7.44% year-on-year (YoY), compared to 4.87% in June, as reported by the National Statistical Office (NSO).

Vegetable Prices Drive Inflation: The primary driver behind this notable inflation rise was a substantial increase in vegetable prices, particularly tomatoes, during the preceding month.

RBI’s Tolerance Band Exceeded: July’s consumer price index surge to 7.44% marked the first instance in five months where retail inflation surpassed the upper limit of the Reserve Bank of India’s (RBI’s) tolerance band, which stands at 2-6%.

Economist Predictions: A Reuters poll of 53 economists had anticipated an annual headline inflation of 6.40%, primarily attributed to escalating food prices.

Rising Concerns: The latest data underscores a substantial retail inflation rise, predominantly driven by soaring vegetable costs, notably tomatoes. This surge has breached RBI’s upper limit, defying economists’ forecasts.

Impact on Common Man: The growing inflation poses challenges for the general public, and apprehensions arise about its implications on RBI’s policies.

Key Inflation Data:

• Consumer Food Price Index (CFPI): CFPI witnessed a remarkable escalation, surging from 4.49% in June to 11.51%.
• Rural and Urban Inflation: Rural inflation reached 7.63% YoY, while urban inflation surged to 7.20%, compared to the previous month’s 4.96%.

RBI’s Response:

In its August monetary policy review, the RBI opted to maintain the policy rates at 6.50%, while revising the CPI inflation forecast for FY24 to 5.4%, up from the earlier estimate of 5.1%.

Future Outlook:

The inflation surge is primarily attributed to soaring vegetable prices, and this upward trend is expected to persist in the coming months.

Wholesale Inflation and Concerns: India’s wholesale inflation remained negative for four consecutive months, but there was a rise from June’s Wholesale Price Index (WPI) reading of 4.12%, which had been the lowest since September 2015. RBI expressed concerns about possible El Nino weather conditions and global food prices, highlighting the importance of monitoring these factors due to the skewed southwest monsoon.

Note: The recent volatility in vegetable prices may potentially reverse in the near future, necessitating close observation of the situation.

This article is for informational purposes only. Published on August 14, 2023. Source: National Statistical Office (NSO).