India's retail inflation eased in August, led by a deceleration in vegetable prices. While the decline has brought some relief to households, a further slide is expected in September.
Consumer price index-based inflation stood at 6.8% in August, compared to 7.4% in July. Food and beverage inflation saw a modest decline to 9.19% during August, as against 10.57% in the previous month.
As such, households continued to see a near-collective rise in grocery bills, having to pay high prices for atta, bread, rice, dals, and spices. Prices of key vegetables, such as tomatoes, remained very high, rising by 180% from a year ago. Still, it was lower than the rise of 201% in the previous month, and sequentially too, prices declined by 21.7%. Potatoes and onions, however, saw a sequential rise in prices.
Over June and July, food prices have increased by nearly 8% month-on-month, while in normal circumstances they should have increased by about 2%, said Kaushik Das, chief economist at Deutsche Bank AG.
So, there has been a 6% month-on-month excess spike in food prices, particularly led by vegetables such as tomatoes. "We assume that food prices will correct only 3% month-on-month out of this 6% month-on-month excess spike, factoring in the risk of a price rise in some of the food items apart from vegetables," Das said.
In August, food prices fell by only 0.5% MoM, as the average price of vegetables in the month was still on the higher side, with most of the sharp correction happening in the latter half of the month, Das said.
As such, in September, when average vegetable prices will be significantly lower than in August, food prices can easily fall by 2.5% MoM, which can push the headline CPI inflation down to 5.0% year-on-year, he said.
However, the key risk to the inflation outlook remains uneven monsoon performance, with a historical deficit in August and low reservoir levels, cautioned Gaura Sen Gupta, India economist at IDFC First Bank.
Rainfall activity in the first two weeks of September is tracking 5.8% below normal, compared to a 36% deficit in August. As per Skymet, it is expected to improve in the remainder of September, which could reduce the cumulative deficit, she said.
There is some relief. Core inflation—all items excluding food and fuel—has continued to ease. Prices of clothing and footwear, household goods, and services are providing respite amid the festive season after rising through most of last year.
Among utilities, electricity bills saw a rise on account of higher tariffs, while your other bills are unlikely to have seen much change.
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