Retail inflation falls below RBI's target range in July
retail inflation
fell to an eight-year low of 1.55% in July, below the central bank's 2-6% target range, driven largely by a drop in food prices, official data released Tuesday showed. This marks the sixth straight month of Consumer Price Index (CPI)
inflation
staying below 4%. The Reserve Bank of India (
RBI
) is mandated to keep inflation at 4% within the range.
Food inflation, which carries significant weight in the CPI, remained in deflation for the second consecutive month at -1.8% in July, lowest after January 2019.
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"The CPI inflation was dampened by the continued year-on-year decline in food prices on an elevated base, even as vegetable prices displayed a surprising uptick," said Aditi Nayar, chief economist at
ICRA
.
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Paras Jasrai, associate director at India Ratings and Research (Ind-Ra), said, "The benign inflationary trend is quite favourable especially for a sustainable improvement in consumption demand".
"The tariff issue could have some impact on crude oil price for India but the impact, if at all, would be more on Wholesale Price Index (WPI) as the CPI components are regulated by the government," said Madan Sabnavis, chief economist at
Bank of Baroda
. The US has imposed a 50% tariff on Indian imports, which includes a 25% penalty for importing oil from Russia.
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Rural inflation eased to 1.2% in July from 1.7% in June, while urban inflation fell to 2.1% from 2.6%. Out of 22 major states and union territories, 11 recorded a higher inflation than national average. Kerala led at 8.9%, followed by Jammu & Kashmir (3.8%), Punjab (3.5%), Karnataka (2.7%), and Maharashtra (2.3%).
Food, Core inflation
Food inflation fell due to a decline in vegetables (-20.7%), pulses (-13.8%), and fall in cereals inflation to a 43-month low of 3%. Prices of key vegetables also dropped - potato (-34.35%), onion (-34.86%), and tomato (-34.17%).
"Looking ahead, food inflation is likely to remain contained, supported by healthy agricultural activity and a favourable base," said Rajani Sinha, chief economist at CareEdge Ratings.
Core inflation, which excludes food and energy, slipped to a three-month low of 4.1% in July from 4.4% last month. "The fall in core inflation was largely due to the sharp moderation of inflationary pressures in transport, communication, and education," said Sinha.
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