New Delhi: India’s retail inflation eased to 3.54 per cent in July, coming below the Reserve Bank of India’s medium-term target of 4 per cent for the first time in nearly five years, largely due to a favourable base effect and softening in prices of food items, government data showed on Monday.
There was a sharp month-on-month as well as year-on-year decline in the Consumer Price Index (CPI)-based inflation, which the RBI targets for its policy action. The headline retail inflation stood at 5.08 per cent in June, while in July 2023 it was recorded 7.44 per cent.
July 2024 inflation print is the lowest in 59 months, as per data by the National Statistical Office. Even then rate cuts by the RBI’s Monetary Policy Committee (MPC) are unlikely in the October meeting.
“With the RBI still hawkish, and the increase in its near term inflation forecasts, we continue to see cuts starting only in December,” said Shreya Sodhani, Regional Economist, Barclays.
People in urban areas got better relief from price rise than their rural counterparts. Urban retail inflation declined to 2.98 per cent, while in rural areas it stood at 4.10 per cent.
Food inflation eased to a 13-month low of 5.1 per cent in July 2024 after printing above the 7 per cent mark in each of the last eight months. Food prices account for nearly half of CPI basket
The chief driver of the downtrend was vegetable inflation, which declined quite sharply to 6.8 per cent in July from 29.3 per cent in the previous month, led by the favourable base.
Analysts said inflation is likely to remain below 4 per cent in August as well. Referring to the prices of 22 essential commodities released by the government till August 10, Aditi Nayar, Chief Economist at ICRA, said the retail inflation is likely to ease to 3.4 per cent in August. “Nevertheless, the trajectory of perishable prices remains a key monitorable in the near-term,” Nayar added.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said the July inflation figure is lower than the estimates inferred from RBI’s upward revised Q2 figures. RBI's monetary policy committee last week pegged the retail inflation figure for July-September quarter at 4.4 per cent.
"We continue to maintain that RBI will be in a status quo mode on rates for the October policy with a likely shift in stance then. Scope for a shallow rate easing cycle could open from December but much will be data dependent both in India and the US," Bhardwaj said.