Retail inflation eases to 6.83% in August

India's retail inflation eased to 6.83% year-on-year in August 2023 from a 15-month peak of 7.44% in July, breaching the Reserve Bank of India's (RBI) 6% upper tolerance limit, according to official data released by the Ministry of Statistics & Programme Implementation today.

Headline inflation, measured by the Consumer Price Index (CPI), fell to 7.02% in rural areas in August from 7.63% in July. Inflation in urban areas dropped to 6.59% in August from 7.20% in the previous month.

The consumer food price index (CFPI) fell to 9.94% in August from 11.51% in July, with the food price index falling in both the rural and urban categories.

All-India year-on-year inflation rates data for August 2023 shows fruit and vegetable inflation at 4.05% and 26.14%, respectively. The retail inflation in pulses and products and spices categories was at 13.04% and 23.19%, respectively. The inflation in food and beverages, and pan, tobacco, and intoxicants category was recorded at 9.19% and 4.10%, respectively.

The country's retail inflation had surged to 7.44% in July from 4.87% in June 2023. The current rise in retail inflation comes days after the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) said headline inflation is expected to witness a spike in the near months on account of supply disruptions due to adverse weather conditions.

While the vegetable price shocks are expected to correct quickly with the arrival of fresh crops, there are risks to the food and the overall inflation outlook from El Nino conditions, volatile global food prices, and skewed monsoon distribution, said RBI governor Shaktikanta Das.

The MPC in August 2023 unanimously voted to keep the "policy repo rate unchanged" at 6.5%.

Addressing a G20 Summit meeting on August 25, Finance Minister Nirmala Sitharaman also outlined inflation control, capital expenditure, investments in health and education, climate action, and diversification of global supply chains as the five key priorities for sustained global economic growth.

The minister said taming inflation is "absolutely critical" for economic growth, as persistently high inflation will weaken demand. “Equally, elevated interest rates for a considerable time can come in the way of economic recovery. The tendency to use interest rates as a solution for dealing with inflation has its own downside. So, the task of the central banks is to keep in mind growth and growth-related priorities even as equally looking at controlling inflation. The fiscal deficit also needs to be restrained,” she said.

Meanwhile, the quick estimates of the Index of Industrial Production and use-based Index for July 2023 show that IIP grew to 5.7% in July from 3.8% in the previous month.