India’s retail inflation rose from 5.6 per cent in July to 5.3% in August, led by food price inflation falling to 3.11% from around 4% in July and the impact of a higher base last August.
This is the second month of modest moderation in the consumer price index (CPI), which keeps retail inflation below the central bank’s upper tolerance limit of 6%, after reaching 6.3 per cent in May and June this year. The Reserve Bank of India is expected to continue with its accommodative monetary policy stance, keeping the headline inflation numbers low.
However, economists warned that inflation risks remain and could dampen enthusiasm for festive spending as inflation remains high in health (7.8%), transport and communication (10.2%), fuel and light (about 13%). made of. He attributed the fall in inflation mainly to the base effect – CPI inflation stood at 6.7% in August 2020, with the Consumer Food Price Index rising at 9.05%.
The pace of price increases in protein sources and oils remains a cause for concern, even though overall food and beverage inflation stood at 3.8 per cent this August. According to the Office for National Statistics (NSO), after softening last month, oil and fat inflation rose to 33%, while inflation in eggs, meat and fish and pulses stood at 16.3%, 9.2% and 8.8%, respectively.
“Overall, the level of comfort from low CPI inflation is not commensurate with the level of decline. CARE Ratings chief economist Madan Sabnavis said, “Inflation will move downwards for the next two months as the base effect will provide this support.” 11.7%’.
Underlying inflation is likely to have risen, Mr Sabnavis said, emphasizing that higher inflation in household goods and health could turn ‘weak against demand’ this festive season.
“Health inflation is again a concern as households are spending too much on healthcare which in turn will reduce purchasing power and may impact demand this festive season. It is also for rural India this time,” he emphasized.
“Inflation in clothing and footwear soared to 6.8% in August 2021, which may indicate a recovery in demand,” said Aditi Nair, chief economist, ICRA. July.
Despite the positive ‘surprises’ from August retail inflation, DBS Singapore economist Radhika Rao said the pass-through effects of inflationary pressures from higher fuel and commodity prices remain headwinds for months to come.
“On a gradual basis, pipeline forces are monitored especially due to higher costs due to domestic fuel tax rigors, service reopening benefits and supply constraints coupled with firm input prices,” Ms Rao said.
Member of the Fourteenth Finance Commission, M Govinda Rao, said he expects inflation to remain below 6% by 2021-22 due to the ‘favourable base effect’. Mr Rao, who is now Chief Economic Adviser at Brickwork Ratings, said the recent import duty cut on crude palm oil could help curb domestic edible oil prices and the recent correction in international crude oil prices. Also fuel inflation can be reduced.
“We do not expect any change in the policy rate and stance of the Monetary Policy Committee when it meets in October,” he concluded.
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