Data released by the National Bureau of Statistics (NSO) showed on Tuesday that retail inflation, as measured by the consumer price index (CPI), rose at an annual rate of 6.8% in August, slower than a 15-month high of 7.4% in July, which brought much needed relief. Food inflation fell from 11.5% in July to 9.9% in August. Rural inflation was higher at 7%, while urban inflation was 6.6%. Inflation in vegetables fell to 26.1% in August from 37.4% in the previous month.
“Despite the reversal of the relatively transitory spike in tomato prices, the outlook for food inflation remains tense, due to other vegetables such as onions and kharif crops with a year-on-year delay in sowing, such as pulses. Well. Distributed rainfall in the remainder of September could help protect kharif yields even as reservoir levels do not augur well for an early start to rabi sowing,” said Aditi Nayar, chief economist at rating agency ICRA.
The frequent incidents of recurring food price shocks pose a risk to the anchoring of inflation expectations, which have been ongoing since September 2022, and the central bank will also remain vigilant against this, RBI Governor Shaktikanta Das said in a recent speech.
Experts say the RBI is expected to maintain interest rates as it monitors the trajectory of food prices. “We expect the RBI to see through the rise in inflation in July and August due to the sharp rise in vegetable prices and maintain status quo on rates and October policy stance,” said DK Joshi, chief economist at rating agency Crisil.
“Food inflation will remain an important factor to monitor for them as, if persistent, it could spill over to other components and drive overall CPI inflation. above the RBI‘s target,” Joshi said.
Separate data showed the IIP rose 5.7% in July, up from 3.7% in June on robust performance from the manufacturing sector. The manufacturing sector, which accounts for nearly 78% of the IIP, rose 4.6% in July, up from 3.1% a year earlier. “The Manufacturing Purchasing Managers’ Index (PMI), which stood at a three-month high of 58.6 in August, points to a brighter outlook for IIP growth. We believe that the strength of industrial production will be tested by the external environment in the coming months as the global slowdown is expected to intensify in the second half of the year,” Joshi said.
