News

Published: September 13, 2023
Updated: September 13, 2023

India's Retail Inflation Eases in August, But Concerns Linger

In a recent development, India's retail inflation for the month of August showed signs of moderation, primarily attributed to a decline in food prices. However, it remained above the upper limit of the central bank's target range for the second consecutive month. This persistent high inflation rate continues to keep policymakers vigilant about the country's economic outlook.

Retail Inflation Drops in August:

The annual retail inflation rate for August recorded at 6.83%, a decrease from the previous month's 7.44%, which had marked a 15-month high. These figures, released by the Ministry of Statistics, were notably lower than the 7% estimate predicted by a consensus of 45 economists polled by Reuters.

Food Inflation Eases:

Food inflation, a significant component of the overall consumer price index (CPI), accounted for nearly half of the inflation basket. In August, it registered at 9.94%, down from July's 11.51%. This moderation in food prices provided some relief, contributing to the overall decrease in inflation.

Factors Behind the Easing:

Aditi Nayar, an economist at ICRA, noted that the easing of CPI inflation below the 7% threshold was influenced by multiple factors. Notably, it was led by a decline in vegetable prices, alongside some moderation in other categories such as clothing and footwear, housing, and miscellaneous items. However, food prices had been a cause for concern due to unpredictable weather conditions affecting the production of essential items like vegetables, milk, and cereals.

Persistent Inflation Challenges:

India has grappled with inflation above the central bank's target range of 2%-6% for seven out of the past 12 months. Reserve Bank of India (RBI) Governor Shaktikanta Das emphasised that while the central bank is keeping a close eye on inflation, recent surges in vegetable prices are expected to recede.

Vegetable and Cereal Inflation:

Vegetable inflation, a major contributor to food inflation, showed a significant easing from 37.34% in July to 26.14% in August. Similarly, cereal inflation dropped from 13.04% in July to 11.85% in August.

Mitigating Measures:

To curb domestic inflation, India's government took measures such as banning non-basmati white rice exports and imposing a 20% duty on parboiled rice exports. Additionally, a 40% tax was levied on onion exports, and wheat exports have remained prohibited since the previous year.

Upside Inflation Risks:

Despite the recent moderation, inflation is expected to remain elevated in the coming months. Factors contributing to this include a weak monsoon, lower reservoir levels, and rising crude oil prices, all of which are likely to exert continued pressure on food prices. Approximately 60% of food and beverage subcomponents still experienced inflation rates exceeding 6% in August.

India's retail inflation showed signs of easing in August, primarily due to a decline in food prices, bringing some relief to policymakers. However, the persistent challenge of inflation remains, with factors like adverse weather conditions and rising crude oil prices posing ongoing risks. As the nation navigates these inflationary pressures, the Reserve Bank of India is expected to maintain its cautious stance on monetary policy to ensure economic stability in the face of these challenges.