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A Mint poll of 19 economists had estimated a six-month high retail inflation of 6.50% in July, sharply up from June’s 4.81%, on account of a surge in vegetable prices. Respondents in the poll had made estimates in the range of 5.5-7.5%, with all but two expecting inflation to cross the upper limit of RBI’s 2-6% target band.

The revised retail inflation for June stood at 4.87%, according to the latest data.

Food inflation measured by the Consumer Food Price Index (CFPI), which accounts for nearly half of the overall consumer price basket, quickened to 11.51% in July from 4.55% (revised) in the preceding month, registering its highest level since October 2020, according to data released by the ministry of statistics and programme implementation (MoSPI). This was the primary reason for the jump in July retail inflation, according to Madan Sabnavis, chief economist at Bank of Baroda.

“Cereals, pulses, vegetables, spices and milk all had high inflation, with vegetables topping at 37.3%. True, this can be temporary, but it takes time for prices to come down to temper these rates,” Sabnavis added. Inflation in these categories continued in double digits in July.

Core inflation, which excludes the volatile food and energy categories, cooled slightly to 5.1%, remaining below the headline inflation, said Aditi Nayar, chief economist at Icra Ltd.

A lot of the gains from falling interest rates after RBI’s rate hike pause in April could be undone by what is clearly a transitory food inflation trend, said Debopam Chaudhuri, chief economist at Piramal Enterprises Ltd.

“Monetary policymakers may have to soothe market nerves till the next rate decision and limit any unexpected spike in benchmark yields,” Chaudhuri said.

“It is unlikely that today’s inflation data will re-trigger a rate hike programme in India, as globally, retail inflation is on the decline,” he added.

Meanwhile, India’s Wholesale Price Index (WPI) remained in deflationary territory for the fourth consecutive month in July due to easing prices of mineral oils, basic metals, chemicals and textiles, even though food and vegetable prices surged.

WPI declined 1.36% in July, according to data released by the commerce and industry ministry on Monday. This follows a 4.12% fall in June and a 3.48% decline in May. WPI-based inflation stood at 13.93% in July 2022.

Economists polled by Reuters had estimated WPI to register a 2.70% fall in July.

Fuel and power prices saw the steepest decline, plunging 12.79% from a year earlier, compared with a 12.63% decline in June. In manufactured products, prices fell 2.51% in July, compared with a 2.71% fall in the preceding month. However, food prices, driven by a sharp rise in vegetable prices, shot up 7.75% in July after falling 1.24% in June.

To put things in perspective, the month-on-month change in the food index stood higher by 7.13%, while the all-commodities index was up 1.95%. Vegetable inflation, part of the primary articles index, rose by 62.12% in July after falling the previous month.

“The pace of annualized decline in WPI slowed significantly compared with the previous two months, with the spike in food prices led by vegetables restricting the downside,” said Rajani Sinha, chief economist at Care Ratings Ltd.

“If the food prices continue to trend upward, the deflationary trend could end, and WPI inflation could turn marginally positive in the coming months. Additionally, the uptrend in global crude oil prices, global edible oil prices, and uneven monsoon distribution domestically pose an upside risk to the outlook,” Sinha added.

Earlier this month, RBI left the repo rate unchanged at 6.50% after terming the recent spike in vegetable prices to a demand-supply mismatch.

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Updated: 14 Aug 2023, 11:41 PM IST

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