Retail inflation surged to a 15-month high of 7.44 per cent in July as the cost of tomatoes, vegetables, and other food items escalated, surpassing the Reserve Bank’s comfort level for the first time in the current fiscal year.
The Reserve Bank of India (RBI)’s target is to maintain retail inflation within the range of 2 to 6 per cent. After staying above the upper threshold for most of the 2022-23 financial year, inflation had come into the Central bank’s comfort zone this fiscal year until June.
Official data released on Monday revealed that the Consumer Price Index (CPI) based inflation spiked to 7.44 per cent in July, considerably higher than the 4.87 per cent recorded in June. The retail inflation was at 6.71 per cent in July 2022, and the previous peak was noted at 7.79 per cent in April 2022.
The CPI-based inflation for the food basket stood at 11.51 per cent in July, a significant jump from 4.55 per cent in the preceding month, and 6.69 per cent in July 2022, as per data from the National Statistical Office (NSO).
During July, the annual inflation rates were 37.44 per cent for vegetables, 21.63 per cent for spices, 13.27 per cent for pulses and related products, and 13 per cent for cereals and their derivatives.
The food and beverages segment jointly contributes about 54 per cent to the overall CPI. However, the rate of price increase in the oils and fats segment decreased by 16.8 per cent. The inflation rates for meat, fish, eggs, and fruits were in the lower single digits, according to the data.
While presenting the bi-monthly monetary policy last week, RBI Governor Shaktikanta Das cautioned about a substantial increase in headline inflation in the near future and revised the inflation forecast for the second quarter to 6.2 per cent.
Retail inflation had remained within the RBI’s comfort range from March to June this year.
Aditi Nayar, Chief Economist at the rating agency ICRA, noted that considering the CPI inflation figure for July, the RBI’s revised inflation forecast for Q2 FY2024 of 6.2 per cent might be at risk of being exceeded, as the shock from vegetable prices may not reverse sufficiently before the next harvest. Moreover, the deficiency in rainfall in August so far could exert upward pressure on food prices, given the delays in sowing certain crops during the kharif season.
According to NSO data, retail inflation in rural areas was 7.63 per cent, while in urban areas, it was 7.2 per cent, resulting in a combined CPI of 7.44 per cent. NSO gathers price data from selected 1,114 urban markets and 1,181 villages covering all states and union territories. In July 2023, NSO collected prices from 99.5 per cent of villages and 98.5 per cent of urban markets, with reported market-wise prices being 88.6 per cent for rural and 92.2 per cent for urban areas.
Meanwhile, wholesale price inflation remained negative for the fourth consecutive month in July at (-) 1.36 per cent, despite the steep rise in food prices, particularly vegetables. The inflation, however, rose from (-) 4.12 per cent in June, propelled by a 62.12 per cent surge in vegetable prices. In July of the previous year, the wholesale price index (WPI) was 14.07 per cent.