Retail inflation falls to 3.78% in July

With cheaper food prices, retail inflation fell sharply to multi-year low of 3.78 per cent, while the growth in factory output improved to 3.8 per cent in June from 2.7 per cent in the previous month, according to the official data released on Wednesday.The retail inflation based on Consumer Price Index (CPI) was at 5.40 per cent in June 2015. “In July 2014, CPI-based retail inflation was as high as 7.39 per cent, while Index of Industrial Production (IIP) expanded at a four-month high rate of 3.8 per cent in June due to improvement in manufacturing activity,” the data said.

The food inflation, which is based on Consumer Food Price Index, also fell to 2.15 per cent in July as against 5.48 per cent in June. Prices of vegetables fell sharply during the month from that of the last yearFruits too turned cheaper by 1.45 per cent during the month compared to the same month last year.

“However, prices of protein-rich items such as pulses remained higher as inflation rose to 22.88 per cent (on such items). Also, meat and fish prices turned costly by 7.02 per cent,” it said.Inflation in cereals and products, the data added, was at 1.06 per cent, eggs at 2.8 per cent, milk and products at 6.12 per cent and that for oils and fats was at 2.78 per cent in July 2015.

Experts are of view that the fall of 3.78 per cent in consumer inflation was “much below the expectation” and was due to drop in food prices. “It is contradictory to daily price data released by the Government. The vegetable prices in July have declined by nearly 8 per cent. This will have a favourable impact on bond pricing and increase in probability of monetary easing,” India Ratings & Research Chief Economist Devendra Kumar Pant said.

Sugar and confectionery prices among others, have also contracted by 12.30 per cent in the same period. Spices prices rose by 9.09 per cent, non-alcoholic beverages by 4.44 per cent, prepared meals, snacks and sweets by 7.7 per cent while that for food and beverages category by 2.89 per cent. 

Crisil Chief Economist DK Joshi, however, said the fall in inflation was a surprise on the positive side. “Inflation is better than expected. However, the fall in inflation is a surprise on the positive side. For RBI’s next move, it makes the chances favourable and I think it would like to watch before going for rate cut,” Joshi said.

Inflation in fuel and light category stood at 5.36 per cent, housing at 4.44 per cent. Transport and communication prices fell by 0.35 per cent. Inflation for rural segment was 4.44 per cent in July (from 6.07 per cent in June) and that for urban sector was at 2.94 per cent (as against 4.55 per cent in June), the data showed.