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Concerted efforts by the Reserve Bank and the central government to contain inflation seem to be having some effect, albeit modest, in slowing the pace of price gains, shows the latest retail inflation data. Price gains as measured by the Consumer Price Index (CPI) almost markedly narrowed to 7.01% in JuneFrom 7.04% in May, food price inflation declined by 22 basis points to 7.75%. Of the 12 items in the food and beverage basket – almost half the weight of the CPI – prices of pulses and edible oils declined from a month ago. Prices of the major cooking medium, which were on a boil amid supply shocks (from Ukraine and Indonesia), have been helped by a reduction in import duties. Year-on-year inflation in oils and fats declined 390 basis points to 9.4% last month, with the index shrinking 0.7% on a sequential basis. And prices of pulses shrank from both a year ago and last month. The other major positive sign was the policy measure translating into softer prices with transportation fuels. The Centre’s reduction in excise duty on petrol and diesel in May was manifested in a significant reduction in inflation in the Transport and Communications Index: year-on-year, the rate declined 260 basis points to 6.9%, while sequentially it was 120 basis points lower. But the points shrunk.
Still, it is too early for policymakers to let down their guard. With nine of the 12 items in the food and beverage basket, representing about 80% of the sub-index and spanning from cereals, milk and meat to vegetables, sugar and spices, experienced gradual price gains. To avoid this, the government will need to maintain vigilance. Any build-up of inflationary pressure in consumers’ kitchens. Year-on-year inflation in cereals, meat and milk accelerated in June from May pace, and price gains in vegetables still remained in double digits at 17.4%. The progress of monsoon rains gives hope that prices of agricultural products may come down in the coming months, provided that crop growing areas are not adversely affected by excessive rains and floods in some states. And with some respite from a significant softening in global crude prices in recent sessions, the rupee’s sharp depreciation against the dollar means India will continue to face the threat of ‘import inflation’ as the bill of imports, including crude, rises. lives. The decision of the GST Council to raise tariffs on a range of goods, including some items of mass consumption, is also bound to put upward pressure on prices. Finance Minister Nirmala Sitharaman’s remarks on Tuesday reflect officials’ recognition that any lull in the fight against inflation risks undermines growth and lower macroeconomic stability.