India’s retail inflation eased to 5.59% per cent in July, back within the Monetary Policy Committee’s inflation targeting range of 4 (+/-2) percent, on the back of softening food prices, government data showed. It was 6.2 per cent in June. Meanwhile, the factory output, measured by the Index of Industrial Production (IIP) rose to 13.6 per cent in the same month of last year and rose by 29.3 per cent in May.
This is the first time in three months that the CPI data has come below the Reserve Bank of India’s (RBI) upper margin of 6 per cent. Prior to this, the CPI came above the 6 per cent mark for two consecutive months.
Rumki Majumdar, Economist, Deloitte India, said “The decline in prices suggests that inflation was largely a function of supply chain disruptions. We believe that inflation may ease in the coming months assuming no rise in infections. However, high oil and commodity prices will keep the pressure on prices.”
Food inflation fell substantially to 3.96 per cent in July from 5.15 per cent in June, data from the National Statistical Office showed on August 12.
The fall in the food basket was mainly due to a dip in prices of vegetables that slipped (-)7.75 per cent and cereals and products which declined (-)1.75 per cent in July. Apart from this, sugar and confectionery too dipped (-)0.52 per cent. On the other hand, prices of oils and fats surged 32.53 per cent on year, the egg prices segment saw a rise of 20.82 per cent and that of pulses and products rose 9.04 per cent and fruits gained 8.91 per cent. Non-alcoholic beverages climbed 14.44 per cent.
CPI data is primarily factored in by the RBI while making its bi-monthly monetary policy. Last week, the central bank’s Monetary Policy Committee (MPC) had kept the repo rate unchanged for the seventh time in a row at 4 per cent while maintaining an ‘accommodative stance’.
The RBI, in its latest MPC meeting, raised the CPI inflation forecast at 5.7 per cent from 5.1 per cent estimated earlier during the ongoing financial year 2021-22 (FY22). It sees CPI inflation at 5.9 per cent in Q2, 5.3 per cent in Q3, 5.8 per cent in Q4 with risks broadly balanced. The CPI inflation for Q1 FY23 is projected at 5.1 per cent.
Industrial output for the month of June rose 13.6 per cent, in a sign that the low base effect of the last year is waning.
“The strong growth in infrastructure IIP in June suggests the government-backed construction industry was probably not as much affected by the lockdowns,” Majumdar added.
Factory output, measured by the Index of Industrial Production (IIP) had contracted 16.6 per cent in the same month of last year and rose by 29.3 per cent in May.
The mining activity for the reporting month rose 23.1 per cent, while the manufacturing output increased by 13 per cent. Meanwhile, the electricity generation stood at 8.3 per cent in June.
