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India's August Retail Inflation: 6.83%



  Sep 15, 2023

India's Retail Inflation: A Closer Look


In August, India witnessed a slight decrease in retail inflation, registering at 6.83% compared to the 15-month peak of 7.44% in July. Despite this, the surge in food prices remained high at approximately 10%, with rural consumers experiencing over 7% inflation.

Details of the Inflation

Vegetable Prices: Although there was a reduction from the 37.4% spike in July, the prices were still considerably high at 26.1% in August.
Cereal and Pulses: Inflation in cereals saw a small dip, going from around 13% in July to 11.85% in August. However, the price of pulses increased by 13%, fueled by concerns over reduced kharif sowing potentially escalating the prices in the upcoming months.
 
Consumer Price Index (CPI) :A 5.8% sequential drop in vegetable prices from July accounted for nearly half of the decline in August's CPI.
A slight decrease in the inflation rate for clothing, footwear, housing, and other miscellaneous items also contributed.

Concerns and Predictions

Food Inflation: Seven out of the twelve food segments in the index experienced accelerated inflation, indicating a precarious outlook for various components of the consumption basket.
Crisil chief economist Dharmakirti Joshi emphasized that sustained food inflation could affect other components and push the headline CPI inflation above the RBI's target, thereby restricting monetary policy.
 
State-wise Inflation: Twelve states recorded inflation rates higher than the national average of 6.83%.
Rajasthan experienced the highest increase with 8.6%, while Delhi had the lowest inflation rate at 3% in August.
 
RBI's Stance: Economists, including ICRA chief economist Aditi Nayar, speculate that the Reserve Bank of India (RBI) might overlook the short-lived two-month trend of inflation exceeding its upper tolerance limit of 6%.

However, they caution that persistent high food prices could influence other areas.
 
The current scenario necessitates careful monitoring of food inflation to prevent a spill-over effect on other economic sectors. It remains a critical aspect for central banks to respond promptly if inflation begins to generalize, maintaining a balance in the economic ecosystem.

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