Mint Business News - Official Channel
Retail inflation decelerates in August, but remains above RBI's tolerance level
Data released by the National Statistical Office on Monday showed food inflation eased in August to 9.05% from 9.27% in the preceding monthby Asit Ranjan Mishra
NEW DELHI : India’s retail inflation eased a tad in August but remained well above the central bank’s tolerance level for the fifth consecutive month while wholesale price inflation entered inflationary territory after a gap of four months, thus dimming chances of further policy rate cuts by the Monetary Policy Committee of the Reserve Bank of India any time soon.
Data released by the National Statistical Office on Monday showed food inflation eased in August to 9.05% from 9.27% in the preceding month. Inflation in urban India (6.8%) paced ahead of inflation in rural India (6.66%) in August for the first time since the nationwide lockdown was imposed in March. Among states and union territories, West Bengal (9.44%) faced highest retail inflation while Delhi (3.58%) saw the lowest inflation.
With continuing supply distortions amidst localised lockdowns and heavy rainfall in some regions, the retail inflation for food and beverages barely edged downwards, and remained uncomfortably high. Continuing double digit inflation rates for vegetables, pulses, meat and fish, eggs, oils and fat and spices remain a concern, especially given the spike in vegetable prices in September.
Madan Sabnavis, chief economist at Care Ratings said there are few signs of food prices coming down in the coming months. “A good kharif harvest can moderate inflation on cereals to a certain extent, but it does look like that food inflation will remain elevated. Quite clearly the Monetary Policy Committee (MPC) will keep this number at the back of the mind when evaluating its decision in the next meeting. Inflation is well above the threshold of 6% while growth has slipped quite sharply. The liquidity situation is comfortable while bank credit growth has been negative. Under these conditions the decision may steer towards another pause in policy action," he added.
Sunil Kumar Sinha, principal economist at India Ratings said while base effect will have a favourable effect now onwards on retail inflation till January 2021, unless issues related to supply disruptions are addressed, it is unlikely that base effect alone will help in arresting the retail inflation. “The retail inflation in three consecutive quarters is likely to exceed 6% and monetary policy committee will have to respond to the government on the steps taken to keep inflation in 2%-6% range. Despite FY21 first quarter GDP growth plummeting to -23.9%, India Ratings believes policy rates are unlikely to be cut in the forthcoming monetary policy," he added.
The Reserve Bank of India has cut policy rates by 115 basis points so far this year, to 4%. However, rising food inflation has pushed inflation to 6.9% in July, higher than the upper band of the central bank's 2%-6% target range, forcing the RBI to put a pause in its rate cutting cycle.
Data separately released by the industry department earlier in the day showed India’s wholesale price inflation turned positive in August after a gap of four months when it remained in deflationary territory, signaling producers are slowly regaining their pricing power after the supply and demand shock triggered by the coronavirus pandemic
The wholesale price index (WPI) inflation stood at 0.16% in August against a contraction of 0.58% in July as inflation for the manufactured items accelerated to 1.27% from 0.51% during the same period. During August, crude oil prices softened 17.44% from a year ago, while fuel prices eased by 9.7% from their levels a year earlier.
Ten out of the 17 categories of manufactured products listed in WPI, including food products, oils, beverages, tobacco, pharmaceuticals, cement, basic metals saw rise in prices from their level a year ago as demand gradually picked up post lifting of the lockdown.