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CPI Inflation Rises To 7.44 % As Vegetable Prices Skyrocket In July

CPI inflation has crossed the tolerance band of RBI

Vegetables Market
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Consumer Price Index (CPI) Inflation data released on August 14 showed that retail inflation reached 7.44 per cent in July. The retail inflation has crossed RBI’s tolerance band of 2-6 per cent for the first time since February 2023. 

July’s CPI inflation of 7.44 per cent is also the highest number recorded since the high of April 2022 when retail inflation touched 7.79 per cent.  According to the Ministry of Statistics and Project Implementation data, the highest year on year inflation was seen in the vegetables segment. It stood at 34.64 per cent in July.  

Inflation had started to cool down earlier this year when the headline number declined to 4.2 per cent in May. However, rising food prices started to put pressure on the number in June which increased the inflation rate to 4.8 per cent. 

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Keeping an eye on food inflation, the Reserve Bank of India (RBI) had kept the repo rate at 6.5 per cent. In his statement after the conclusion of monetary policy meeting, RBI Governor Shaktikanta Das had said that the central bank has revised its projection of CPI inflation for this fiscal to 5.4 per cent from the earlier 5.1 per cent. “Given the continuing uncertainties, our latest CPI inflation projections for 2023-24, assuming a normal monsoon, is revised to 5.4 per cent, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent. CPI inflation for Q1:2024-25 is projected at 5.2 per cent. The risks are evenly balanced,” the governor had said.  

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Commenting on the RBI’s forecast, Amnish Aggarwal, Head of Research at Prabhudas Lilladher, said, "If the forecast for CPI inflation for coming quarters holds then I think there will be a delay in the revival in consumer demand that people are expecting for FMCG companies." 

The latest CPI inflation data showed that the number was higher in rural areas than urban areas, a reversal of trends seen in the previous month. FMCG companies have been grappling with sluggish growth in volumes due to low demand in rural areas. However, the data for the previous two quarters showed that the elusive volume growth was returning due to cooling inflation and rising disposable income. However, analysts had cautioned that any pressure on inflation will be a problem for recovery in consumer demand.  

Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares and Stock Brokers, said that the CPI inflation number is worse than expected. “With the spike being significantly higher than expected, we are sceptical that inflation will return to its glide path anytime soon. Given this backdrop, another 25-basis point rate hike by the RBI is a distinct possibility. At the same time, a rate cut in the next 12 months appears extremely unlikely.” he added.  

Dipti Deshpande, Principal Economist at CRISIL Limited, said that the current pressure on inflation seemed transient. She added, “This pattern should continue for a few more months after which, government intervention and fresh crop arrivals should curb the food price spike.” 

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Earlier in the day, the data for wholesale price index (WPI) inflation was also released by the government. According to the official data, the WPI inflation remained in deflationary range but a spike was recorded in food prices. Inflation in food index increased to 7.75 per cent in July from -1.24 per cent recorded in June. The inflation in manufactured products and fuel and power index remained in the deflationary zone during the previous month.  

The spike in food prices was led by the inflation in the vegetables segment. The data showed that prices of vegetables jumped by 62 per cent year on year. Commenting on the trends seen in WPI data, Rajani Sinha, Chief Economist at CareEdge Ratings, said, “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.”  

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