India's retail inflation eased more than estimated led by lower vegetable prices. Still, it stayed above the central bank's target range.
The Consumer Price Index-based inflation stood at 6.83% in August, as compared with 7.44% in July, according to data from the Ministry of Statistics and Programme Implementation released on Tuesday. The July figures were the highest in 15 months.
A panel of economists polled by Bloomberg had estimated a reading of 7.1% for August.
Food and beverage inflation rose to 9.19% during August, as against 10.57% in the previous month. Core inflation eased to 4.8% from 5% in the same duration.
Consumer price inflation exceeded the central bank's target range of 4 (+/- 2)% for the second straight month as predicted by the RBI, driven by the spike in tomato and other vegetable prices.
The moderation in CPI inflation in August is comforting, said Rajani Sinha, chief economist at CareEdge. The critical aspect to note is that core inflation has moderated, she said.
According to her, while overall food inflation has moderated, the worrying aspect is that the sequential upward momentum has continued for some food items like cereals, pulses and milk. There is risk of further upward pressure on food inflation, given the skewed rainfall and low reservoir levels. The recent spike in global crude oil prices is also concerning, she said.
Inflation Internals
Cereal prices rose 11.6% in August as compared with 13% in July.
Inflation in meat and fish increased to 3.7% from 2.25%.
Inflation in eggs was 4.3%, as against a rise of 3.82% in the previous month.
Inflation in milk and milk products was 7.7% as compared with 8.34%.
Prices of oils and fats declined by 15.3% after falling by 16.8%.
Vegetable prices rose 26.1% as compared with 37.34%.
Pulses inflation was at 13% against 13.27%.
Clothing and footwear inflation was at 5.2% versus 5.64%.
Housing inflation was at 4.4%, as compared with 4.47%.
Fuel and light inflation stood at 4.3% as against 3.67%.
Inflation To Ease Further In September
Headline consumer inflation is expected to decline in September as vegetables—particularly tomatoes—have seen a sharp correction, said DK Joshi, chief economist at Crisil.
Cereals and pulses remain a concern as monsoon continues to be deficient and sowing in pulses has been 8.6% below last year's levels, he said. The recent spike in crude prices, if sustained, can create upside to fuel inflation which currently is at a benign 4.3%, Joshi said.
Food inflation will remain a key monitorable for the RBI because if sustained, it can spill over to other components and steer the headline CPI inflation above the RBI's target, he said.
Crisil forecasts inflation for FY24 at 5.5% from 5% earlier. "We expect the RBI to look through the July-August lift in inflation due to sharp spike in vegetable prices and maintain status quo on rates and stance in the October Policy," Joshi said.
Aditi Nayar, chief economist at ICRA, also said that the Monetary Policy Committee is expected to remain on hold in October, while continuing to demonstrate caution amid a cloudy outlook for food inflation and elevated crude oil prices.
While we expect the CPI inflation to print in the range of 5.3-5.5% in September 2023, this will still entail an average of 6.6% for Q2 FY2024, well above the MPC's August 2023 forecast for this quarter.Aditi Nayar, Chief Economist, ICRA
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