India’s retail prices rose 3.54% in July, the slowest pace in almost five years, easing sharply from 5.1% in June. Food inflation, that has been high for about three years now, slid to a 13-month low of 5.4%. This is also the first time since August 2019 that inflation as per the Consumer Price Index (CPI) has aligned with the Reserve Bank of India’s median inflation target of 4%. Last week, the Monetary Policy Committee (MPC) decided to maintain status quo on interest rates for the ninth consecutive time as it awaits a durable decline in the inflation rate. July’s pleasant inflation numbers will not trigger a rethink, as the MPC has in fact, hiked its projection for this quarter’s inflation average to 4.4% from 3.8%. So it expects price rise to rebound to well over 4% through August and September. There is good reason to see through July’s print as a purely statistical outcome of base effects from last July — when the CPI was up 7.4% and food was 11.5% dearer — rather than a tangible softening of persistent price pressures for households.
Vegetable inflation, the biggest driver of last month’s decline, slid from June’s 29.3% spike to just 6.8% in July. But this was on top a whopping 37.3% rise last July, when prices of tomato, which played a key role in last month’s vegetable price trend, had hit around ₹110 per kilo. Moreover, households do not feel the pinch of living costs on a year-on-year basis alone, as they need to readjust spending plans depending on how every passing month plays out. While vegetable (and tomato) prices were already high in May amid a heatwave, July’s price levels are over 30% and 14% higher than May and June, respectively. Moreover, inflation in some food items, such as pulses and cereals, remains stubborn despite base effects. The prices of pulses rose in double digits for the fourteenth straight month, by 14.8% on top of 13.3% recorded last July. On the other hand, core inflation (excluding food and energy prices) rose for the first time since January 2023, primarily led by pricier services, including transport and communication that sped thanks to telecom tariff hikes. Private surveys on manufacturing and services signal a hardening of price pressures beyond food, which in turn is expected to see a meaningful reprieve only by October when the next harvest hits the market. While kharif sowing progress holds some hope, the September monsoon spurt predicted by the weatherman may yet hit standing crops. With the prolonged spate of high inflation cramping consumption levels, and in turn, hopes of fresh private investments, the latest optical blip offers neither comfort nor room for complacency.
