In July, consumer price inflation eased to a 59-month low of 3.54%, the first time in nearly five years that it has fallen below the Reserve Bank of India's medium-term target of 4%. This was shaped in the latest report by the Ministry of Statistics on Monday. The decline in inflation was partly due to the fact that prices of cooking oil and spices fell by over 1%, soothing household budgets to an extent. Vegetable price inflation has also been contained at 6.83% in July, reflecting improved supplies in the market, after surging 29.32% in June following a severe heatwave in northern states.
Cereal prices jumped 8.1% in July, a moderation from the 8.65% rise noted in June. Food inflation-which contributes almost half to the consumer price index-fell to 5.06% in July from 8.36% in June.
ICRA's chief economist Aditi Nayar said that food and beverage inflation dropped to a 13-month low of 5.1% in July 2024 from over 7% in each of the past eight months. She further commented that with all 22 essential commodities witnessing a decline in their year-on-year inflation rates last month as compared to July, the food and beverage inflation would decline even more, and may slide the headline Consumer Price Index, or CPI, inflation down to 3.4 percent in August. But she said that monitoring of perishable goods prices becomes very imperative.
The RBI has pegged a medium-term target for retail inflation of 4% before any rate cuts in interest rates to boost growth. As expected, the RBI kept the key policy repo rate unchanged at 6.5% for the ninth consecutive meeting on Thursday, walking a tight rope between stimulating economic growth without sacrificing its goal of keeping inflation under control.
According to RBI governor Shaktikanta Das, the Monetary Policy Committee unanimously voted to keep the repo rate constant by 4:2 since inflation was still higher than the target level of 4%, even though it did show easing up to 4.8% during April and May. June saw headline inflation further surge to 5.1% on the strength of continued high food prices. His main argument for taking the continued disinflationary stance, according to Das, has been that sustained growth needs underpinning with price stability. On the other hand, he expected the inflation rate to fall in the third quarter of the financial year.
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