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Retail inflation stays under 4%, but vegetable prices up again

For Preliminary Examination:  Current events of national and international importance

For Mains Examination: GS III - Indian Economy

 

Context:

Tomato prices eased, but rural food inflation surpassed 6%; economists expect the inflation pace to pick up from this month as the base effect fades; rural consumers feel the pinch more; Bihar clocked the sharpest inflation at 6.62%

 

Read about:

What is Inflation?

What is Retail inflation?

 

Key takeaways:

• India's retail inflation remained below the Reserve Bank of India's (RBI) target of 4% for the second consecutive month in August, slightly rising to 3.65% from a revised 3.6% in July. This marks the second-slowest inflation rate in five years.
• A favorable base effect from August last year, when inflation was at 6.8%, helped keep the rate in check. However, food inflation accelerated from July’s 13-month low of 5.4% to 5.7%, surpassing 6% in rural areas.
• Overall, rural inflation remained higher than urban inflation, with a slight increase from 4.1% in July to 4.16% in August, while urban inflation stood at 3.14%.
• Tomato prices saw the steepest decline, dropping 47.9% year-on-year and 28.8% month-on-month. According to the National Statistical Office (NSO), August’s food inflation was the second-lowest since June 2023.
• Despite lower tomato prices, vegetable inflation jumped to 10.7% from July’s 6.8%. Spice prices dropped by 4.4% year-on-year, but pulses inflation remained elevated at 13.6%, marking the 15th consecutive month of double-digit price increases.

Inflation Outlook

• Economists expect inflation to rise again starting this month as the base effects that previously helped ease price increases will fade—CPI inflation was at 5% in September last year.
• The RBI had projected an average inflation rate of 4.4% for the July-September quarter, but with the first two months averaging 3.6%, reaching 6% in September seems unlikely, according to experts. Economists remain divided on the prospects of near-term interest rate cuts.
• Although India's GDP growth in the first quarter fell short of the RBI's 7.1% projection, Nayar noted that a shift in monetary policy could be possible in October. However, Bank of Baroda's chief economist, Madan Sabnavis, suggested that any policy change might not occur before December, as the RBI will likely wait for sustained low inflation.
• On a month-to-month basis, the Consumer Price Index (CPI) remained flat in August, while the Consumer Food Price Index decreased by 0.44%. Rural food prices fell by 0.25%, and urban food prices declined by 0.9%.
• Fruit prices rose 6.5%, and inflation for eggs increased to 7.14% from 6.8% in July. Cereal inflation eased from over 8% to 7.3% in August. Inflation in personal care products cooled slightly, from 8.44% in July to 7.94% in August.
• Of the 22 states for which the NSO tracks inflation, only seven exceeded the national average of 3.65%. Bihar recorded the highest inflation at 6.62%, followed by Odisha (5.63%), Assam (5.03%), Uttar Pradesh (4.9%), Haryana (4.12%), and Kerala (4.1%)