Retail inflation in July rises to 7.44%, hits 15-month high

Food inflation, which accounts for nearly half of the Consumer Price Index (CPI) basket, soared to 11.51% in July from 4.55% in the previous month, the highest level since October 2020.

After a gap of four months, retail inflation breached the Reserve Bank of India’s (RBI) upper tolerance limit in July, surging to 7.44% — the highest in 15 months — due to a sharp jump in the prices of vegetables, spices and cereals, government data showed on Monday. Food inflation, which accounts for nearly half of the Consumer Price Index (CPI) basket, soared to 11.51 per cent in July from 4.55 per cent in the previous month, the highest level since October 2020. The July inflation data is 257 basis points higher than June's revised number of 4.87 per cent, and way above analysts' expectations, as most of them had expected retail inflation to be around 6.4 per cent. "CPI inflation soared to a much sharper-than-expected 15-month high of 7.4 per cent," said Aditi Nayar, Chief Economist, ICRA.

'Not promising'

Nayar said that the data for food prices for early August was not very promising, and added that headline retail inflation could be above the 6.5 per cent mark for the current month, before cooling off materially in September. Vegetable prices in July 2023 were 37.3 per cent higher than those in the same month last year. Spices became costlier by 21.6 per cent, cereal prices soared by 13 per cent and pulses became costlier by 13.3 per cent year-on-year, as per the data by the National Statistical Office (NSO).

There was a massive surge in food prices in the wholesale market also.

The wholesale Price Index (WPI) based food inflation jumped to 7.75 per cent in July after contracting 1.24 per cent in the previous month. Food inflation was driven by a 62.12 per cent surge in vegetable prices, as per the data released by the Ministry of Commerce & Industry.

However, the overall WPI-based inflation remained in the negative zone for the fourth month in a row, largely due to high base. The WPI-based inflation stood at -1.36 per cent in July as compared to -4.12 per cent recorded in the previous month. Fuel and power price was down by 12.79 per cent while the price of manufactured products, which has 64.23 per cent weight in WPI, eased by 2.51 per cent in July on a year-on-year basis.

Food has 47.25 per cent weight in CPI while in the WPI, it accounts for just 24.38 per cent. The price data for CPI is collected by the NSO from 1,114 urban markets and 1,181 villages covering all states and Union Territories.

Higher in rural areas

The retail price rise was sharper in rural areas. Inflation in rural areas surged to 7.63 per cent in July from 4.78 per cent in the previous month. Urban inflation rose to 7.20 per cent in July from 4.96 per cent in June.

Economists said the high inflationary pressure is likely to continue in the coming months. “This pattern should continue for a few more months after which government intervention and fresh crop arrivals should curb the food price spike,” said Dipti Deshpande, Principal Economist, CRISIL.

“We need to brace for another high number before a turnaround takes place,” said Madan Sabnavis, Chief Economist at Bank of Baroda.

“Now, the kharif sowing pattern is not very clear. The area under sowing is lower for pulses and some oilseeds. That can spook prices further if there are shortfalls in output,” he added.