Lower food prices eased India’s July retail inflation to 4.17 percent from 4.92 percent in June, even as it continued to rule over the Reserve Bank of India (RBI)’s medium-term inflation target of 4 percent, official data showed on Monday.
However, on a year-on-year (YoY) basis, the Consumer Price Index (CPI) in July 2018 was higher than in the corresponding period last year, when retail inflation stood at 2.36 percent.
According to the data furnished by the Central Statistics Office (CSO), the Consumer Food Price Index (CFPI) rose 1.37 percent in July from 2.91 percent in June 2018.
Product-wise, prices of milk-based products, eggs, meat and fish pushed the retail inflation higher on a YoY basis.
In contrast, deflation in the cost of vegetables, pulses and sugar capped the overall food prices.
Accordingly, the prices of milk-based products rose by 2.96 percent, while cereals became dearer by 2.92 percent and meat and fish prices recorded a rise of 2.26 percent.
On the other hand, the category of pulses and products became cheaper by (-) 8.91 percent and that of sugar and confectionery by (-) 5.81 percent.
The sub-category of food and beverages during the month under consideration recorded a rise of 1.73 percent over the same period last year.
Among non-food categories, the fuel and light segment’s inflation rate accelerated to 7.96 percent in July.
Continuing with the reversal of accommodation begun in June, the RBI earlier this month again hiked its key lending rate by 25 basis points to bring the repo to 6.50 percent citing upside risks to inflation.
Addressing the media on the hike in the repo, or the short-term lending rate for commercial banks, Governor Urjit Patel said its monetary policy committee (MPC) noted that the rise in retail inflation had continued for the third consecutive month.
“The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 percent, while supporting growth,” the RBI said.
The central bank, however, maintained its neutral stance on policy, as it has done over five previous bi-monthly policy reviews which allows it to move either way on rates.
Commenting on the CPI numbers, Deloitte India Lead Economist Anis Chakravarty said in a statement: “Inflation continued to remain fuelled by higher oil prices as increasing levels of core inflation, especially housing, clothing, and miscellaneous activities. The movement in food inflation has also increased and is likely to follow an upward trajectory due to MSP increase.”
“Given that inflation remains above the medium term target of 4 per cent and the scales are tilted to the upside, the recent increase in key policy rate may provide some respite,” he added.