Retail Inflation In July Eases To 3.5 Per Cent, Lowest In Five Years

Retail Inflation in July: In June, the country's retail inflation was recorded at 5.1 per cent.

Retail Inflation in July: India's retail inflation in July dropped to 3.54 per cent, lowest in the past 59 months, according to data released by the Ministry of Statistics and Programme Implementation on Monday. The last time inflation was below 4 per cent was in September 2019.

Corresponding inflation rate for rural and urban is 4.10 per cent and 2.98 per cent, respectively. The decline in retail inflation was supported by a favourable comparison, as consumer inflation had reached 7.4 per cent in July 2023. In June, the country's retail inflation was recorded at 5.1 per cent.

The government has tasked the Reserve Bank of India (RBI) to ensure that the CPI inflation remains at 4 per cent with a margin of 2 per cent on either side.

Inflation in the food basket was 5.42 per cent in July, down from 9.36 per cent in June. As per NSO data, food inflation in July is the lowest since June 2023. The year-on-year (YoY) inflation rate is 5.42 per cent for the month of July. The corresponding inflation rate for rural and urban is 5.89 per cent and 4.63 per cent, respectively.

During July, there is a decline in inflation for all the groups. Significant decline is in the vegetables, fruits and spices subgroup can be seen according to NSO.

RBI forecast

In its latest MPC concluded on August 8, the Reserve Bank of India kept the policy rate on hold for the ninth consecutive time. The central bank updated its CPI inflation forecast for Q2 FY25 to 4.4 per cent, up from the earlier estimate of 3.8 per cent. For Q3 FY25, the forecast has been slightly adjusted to 4.7 per cent from 4.6 per cent, while the Q4 FY25 projection has been revised downward to 4.3 per cent from 4.5 per cent. The CPI inflation forecast for Q1 FY26 remains at 4.4 per cent.

Governor shaktikanta Das highlighted that while the MPC may overlook temporary spikes in food inflation, it cannot ignore persistently high food prices due to their potential spillover effects, noting that the public largely perceives inflation through food costs.

Murthy Nagarajan, Head-Fixed Income, Tata Asset Management, said, "CPI inflation has come at 3.54 per cent versus 3.70 per cent expectations for the month of July. This is due to vegetable inflation falling and high base effect as last year CPI inflation was above 7 per cent level. Core inflation is at 3.4 per cent versus expectation of 3.35 per cent. There were fears of CPI inflation coming higher as RBI has revised 2nd quarter CPI inflation forecast from 3.8 per cent to 4.4 per cent per cent in its latest monetary policy. This will be taken as positive by the markets but we also have the US CPI data coming in the next two days. This data may continue the positive momentum in the debt market."

Price data are gathered from 1,114 urban markets and 1,181 villages across all states and Union Territories.  In July 2024, the NSO successfully collected prices from 100 per cent of the villages and 98.5 per cent of the urban markets, with market-wise reporting rates of 88.71 per cent for rural areas and 92.64 per cent for urban areas. 

The next release date for the August 2024 CPI is set for Thursday, September 12.

Industrial production in June

On the other hand, the IIP growth rate came in at 4.2 per cent for the month of June, five-month low, according to government data.