Retail inflation eases by 6.83 pc in August with lower food prices

New Delhi: India's headline retail inflation rate fell to 6.83 percent in August, data released by the Ministry of Statistics and Programme Implementation on September 12, as vegetable prices cooled somewhat compared to the previous month.

The August Consumer Price Index (CPI) inflation rate of 6.83 percent marks a decrease of 61 basis points compared to the previous month, which had reached a 15-month high of 7.44 percent in July. Despite this decline, it is the second consecutive month in which inflation has exceeded the upper bound of the Reserve Bank of India's (RBI) tolerance range of 2-6 percent. It also marks the 47th consecutive month that inflation has remained above the RBI's medium-term target of 4 percent.

According to the CPI data, food inflation dropped to 9.94 percent in August from 11.51 percent in July. This decline was primarily driven by a 0.7 percent month-on-month decrease in the Consumer Food Price Index. Vegetable prices played a significant role in this decrease, with the vegetable price index falling by 5.9 percent compared to July.

The fall in vegetable prices contributed to a significant portion (28 basis points) of the overall decline in the headline inflation rate for August. However, prices for cereals and pulses continued to rise, with month-on-month gains of 1.4 percent and 1.5 percent, respectively. Additionally, the spice index increased by 3.2 percent from July.

ALso, core inflation, which excludes food and fuel prices, decreased slightly to 4.8 percent in August, compared to 4.9 percent in July.

Economists anticipate that the full impact of the ongoing decline in vegetable prices will be reflected in the September inflation data, set to be released on October 12. The Reserve Bank of India's Monetary Policy Committee (MPC) has maintained the repo rate at 6.5 percent for three consecutive meetings and is expected to do so again in its upcoming meeting in early October. However, food inflation remains a key factor to monitor, as sustained high food inflation could affect other components of the Consumer Price Index and potentially push inflation above the RBI's target, which could impact monetary policy decisions.

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