Retail inflation dips to 6.71% in July, lowest since March

Retail inflation dips to 6.71% in July, lowest since March


Retail inflation below 7% in July, above RBI target for seven months

Retail inflation eased in July to an annualized 6.71 per cent, the lowest since March, but is above the upper limit of the Reserve Bank of India’s target range for seven consecutive months.

Inflation in June remained above 7 per cent for the third consecutive month, from 7.01 per cent a year ago.

Last month, easing food prices – which account for about half of the Consumer Price Index basket – and fuel costs helped dampen the pace of increase in price pressures.

In fact, according to the data, food inflation came down to 6.75 percent in July 2022 from 7.75 percent in June.

Upasana Bhardwaj, Chief Economist, Kotak Mahindra said, “CPI headline inflation for July has moderated in line with our expectations mainly on account of food inflation, while core inflation remains high and stable.”

“With some readings expected to be above 7 per cent in the coming months, inflation is likely to remain above RBI’s upper limit of 6 per cent till January 2023. We expect the repo rate to stay at 6 per cent by the end of 2022. And neutral Change in policy stance,” he said.

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The bulk of the slowdown comes from fears of a recession, which has dented global commodity prices, with the international oil benchmark, Brent crude, down nearly 9 per cent for the month, compounding the pre-Ukraine crisis, and below $100 a barrel.

This slowdown is also due to the delayed reflection of fuel tax cuts. Government intervention to reduce import duties and restrictions on wheat exports also helped.

Nevertheless, consumer price growth is expected to continue at a brisk pace in the coming months, with RBI’s projections pointing to inflation to remain above the upper end of the 2-6 per cent target range.

The outlook for inflation in the near term is still quite uncertain as the government’s efforts to rein in consumer price growth may be less effective due to the unevenness and weakening of this year’s rainfall.

The government has mandated the central bank to keep retail inflation at 4 per cent, with a tolerance level of plus or minus 2 per cent of that rate, which is 2-6 per cent.

With the inflation outlook rising, the RBI was forced to hike its key repo rate for the first time in four years, raising it to 40 basis points (bps) at an off-cycle meeting in May, followed by 50 basis points (bps). The increase of points in June, and over 50 basis points projected in this month, took the repo rate to 5.40 per cent.

Repo rate is the rate at which RBI lends money to commercial banks and the latest inflation figures show that interest rates will continue to rise.

Earlier this month, the central bank kept its inflation forecast for the current fiscal unchanged at 6.7 per cent and said retail inflation would remain above the upper tolerance level of 6 per cent during the first three quarters of 2022-23.

The government expects to control the rise in prices as key factors are favorable again, sources said on Thursday, adding that India is “set to become the world’s fastest growing economy this year and next year”. Is”.

Sources said the government intends to eventually “eliminate income tax exemptions” and “look at ways to strengthen the system”.

A further analysis of the latest data shows that inflation in rural India fell to 6.80 per cent in July from 7.09 per cent a month ago.

In urban areas, the CPI inflation rate declined to 6.49 per cent in the previous month from 6.86 per cent in June.

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Another set of data from the National Statistical Office (NSO) showed on Friday that industrial output grew 12.3 per cent in June 2022 from a year earlier, compared to 19.6 per cent growth in May.

Industrial production was hit by the coronavirus pandemic in March 2020, when it shrank 18.7 per cent and shrank 57.3 per cent in April 2020, as economic activity declined in view of the lockdown imposed to contain the spread of coronavirus infection .

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Indian Lekhak

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