Inflation In July Likely Breached RBI's 6 Per Cent Upper Tolerance Band: Economists Poll

Food prices have surged in the past two months mostly because of an erratic monsoon across the country, pushing tomato prices at wholesale markets up more than 1,400 per cent in the past three months

Retail inflation in India likely accelerated to 6.40 per cent in July on surging food prices, breaching the upper end of the Reserve Bank of India's (RBI’s) 2-6 per cent tolerance limit for the first time in five months, according to a poll of economists by Reuters revealed.

A report by the news agency stated that food prices, which account for nearly half of the inflation basket, have surged in the past two months mostly because of an erratic monsoon across the country, pushing tomato prices at wholesale markets up more than 1,400 per cent in the past three months. That will hit the vast majority of the population who make up the poor and middle classes. However, the RBI is unlikely to react to the figures and leave rates unchanged at its Thursday meeting. The August 3-8 poll of 53 economists predicted the consumer price index (CPI) rose at an annual rate of 6.40 per cent in July.

The RBI's six-member MPC is holding its three-day meeting to decide the key interest rates. The meeting started on Tuesday and will end with RBI Governor Shaktikanta Das announcing the rates in the policy announcement on Thursday. The last MPC meeting was held between June 6 and 8.

The forecast range was 4.85 per cent-7.60 per cent, with a strong three-quarters majority expecting it to surpass the central bank's top end of the inflation target band, suggesting the food price surge was likely to persist at least for the next few weeks.

"There are no signs of any sequential moderation in food prices in August," noted Rahul Bajoria, chief India economist at Barclays. "Although it is still early in the month, we expect CPI inflation prints to remain elevated in the next couple of months, and then start easing in Q4 2023."

A majority 86 per cent, 24 of 28, economists who answered an additional question said inflation will stay above 6 per cent by the end of the current quarter. If the poll median is correct, the current surge in inflation was likely to outstrip the 5.2 per cent the RBI projects for this quarter.

"Sudden spikes in food inflation generally last for three to four months before they start to mean revert and when they do, the fall is equally sharp," noted Kunal Kundu, India economist at Societe Generale, but added that was not always the case.

The survey noted that the wholesale price inflation likely fell 2.70 per cent year-on-year in July, after a 4.12 per cent decline in June.