New Delhi: Consumer Price Index-based inflation came in above the Monetary Policy Committee’s target band of 4 (+/-2)% for the fourth consecutive month. Official data released on Thursday showed that CPI for July rose 6.93% year on year, up from 6.23% in June, primarily on the back of rise in food and petroleum prices.
Consumer Food Price Index-based inflation (CFPI) rose to 9.62% in July compared to 8.72% in June, data by the National Statistical Office (NSO) showed.
Exactly a week ago, the Reserve Bank of India’s Monetary Policy Committee exercised a pause in its monetary policy, deciding to use future rate cuts “judiciously to maximise the beneficial effects”. The six-member MPC unanimously voted to keep the policy repo rate unchanged at 4% and the reverse repo rate at 3.35%, and kept the stance “accommodative”.
Also read: Indian Consumer Confidence Dropped to Historic Lows in July, Says RBI Survey
“Retail inflation has breached RBI’s upper tolerance limit (6%) for four consecutive months and seven out of eight months. Pandemic has cast its shadow over the retail price data collection also and data for states such as Manipur, Nagaland and Puducherry has not been released, as the price data was collected from less than 70% markets,” said Devendra Pant, Chief Economist with India Ratings.
“As expected, the soaring vegetable prices amidst heavy rainfall and localised lockdowns, contributed to the spike in food inflation in July 2020, which is expected to soften somewhat in the ongoing month,” said Aditi Nayar, Principal Economist, ICRA Ltd.
For July (compared to June), prices rose for meat and fish, fruits, milk and products and other food-sub groups. However, the most drastic increase in the index was seen for vegetables, which rose to 178.4 compared with 156.5 a year earlier.
“Among the other categories those for the miscellaneous group was high at 7%. Personal care and transportation were the two elements that pushed up this number. Going ahead the other components like health, education would also be under pressure. Recreation too would move up once the industry opens up,” said Madan Sabnavis, Chief Economist with Care Ratings.
Sabnavis partly echoed Nayar’s views and said that food inflation will move downwards once the kharif crop comes in post September. Disruptions in economic activity and localised lockdowns affected free movement of goods leading to artificial increase in prices, he said and added that the government’s policy of not reducing the price of petrol and diesel kept the transport costs higher.
Sabnavis said that the MPC’s decision to not cut rates in its last review was ‘appropriate’
“The evolving trends for the ongoing month suggest that the CPI inflation may remain appreciably above 6% in August 2020, which would be the last inflation print available before the next scheduled MPC review. Accordingly, the likelihood that the MPC would persist with a pause in its October 2020 meeting has climbed sharply, with a final rate cut likely to be deferred to the December 2020 or February,” Nayar said.
(By arrangement with Business Standard)