Retail inflation rises back to 7% in August

Discontinuing its downward trajectory, India's retail inflation, measured via Consumer Price Index (CPI), rose around 0.52% to 7% in August, likely due to uneven monsoon progression in the country, the data released by the Ministry of Statistics & Programme Implementation shows.

The inflation rose in both rural and urban areas. The CPI inflation in rural areas was recorded at 7.15%, up from 6.80% in July 2022 and 5.28% in August 2021. In urban areas, retail inflation rose to 6.72% in August 2022, from 6.49% in July 2022 and 5.32% in August 2021. India’s retail inflation remains above the central bank’s upper tolerance band of 6% for the eighth straight month now.

The Consumer Food Price Index (CFPI), which measures the change in retail prices of food items, or inflation in food basket in August 2022 stood at 7.62% in August 2022 against 6.69% (final) in July 2022 and 3.11% in August 2021.

In the food basket, which comprises 45% of the index, spices and vegetables saw the highest inflation at 13.23% and 14.90%, respectively. Food and beverages inflation stood at 7.57% in August 2022, while cereals and products inflation stood at 9.57% in August 2022. Fuel and light inflation was marked at 10.78%. Retail inflation in August 2022 was pushed higher by a rise in food items like pulses, vegetables and cereals.

Before August, the retail inflation had eased for three months straight -- 6.7% in July, 7.01% in June, and 7.04% in May. CPI inflation had, however, risen to an eight-year high of 7.79% in April 2022.

The prices of food items in July had seen a sharp dip, the lowest since March 2022, at 6.75% from 7.75% in June. It was the main driver that pushed the retail inflation below 7% after three months.

In order to curb rising food prices of essential commodities, the government in recent months has banned food items like rice, wheat flour, tur dal (red gram). However, the prices remain high due to inflationary pressures that have stemmed from the Russia-Ukraine war and subsequent rises in fuel and commodity prices.

The Reserve Bank of India (RBI), in its August monetary policy meeting, had said the headline inflation would remain above its tolerance band (4% +/-2%) for the first three quarters, with some kind of relief expected only in the fourth quarter of FY23.

In order to tame spiralling inflation, it hiked the key repo rate by 50 basis points to 5.4%, which took it to the highest level since August 2019. The RBI said it'll focus on withdrawal of the accommodative policy stance to control inflation and support the economy amid other challenges.

For the full fiscal year FY23, the RBI thinks the retail inflation will remain at 6.7% and will reduce to 5% in FY24. The RBI analysis shows the headline inflation will remain at 7.1% in Q2 Fy23; 7.4% in Q3 FY23; and 5.8% in Q4 FY22.