Retail inflation fell below 7% in July, kept above RBI target for seven months
Retail inflation fell to an annualized 6.71% in July, its lowest level since March, but above the upper limit of the Reserve Bank of India’s target range for seven consecutive months.
In June, inflation held above 7% for the third consecutive month, at 7.01 percent from a year ago.
Last month’s easing in food prices – which make up nearly half of a basket of the consumer price index – and fuel costs helped slow the pace of price pressures.
Indeed, according to the data, food inflation in July 2022 revised down to 6.75%, compared with 7.75% in June.
Upasna Bhardwaj, Chief Economist at Kotak Mahindra, said: “July CPI headline inflation adjusted to our expectations, mainly driven by food inflation, while core inflation remained high and sticky”.
“The next few readings are expected to stay above 7%, with inflation likely to hover above the RBI upper bound of 6% through January 2023. We expect a repo rate. at 6% by the end of 2022, she added.
Much of the downturn stem from recession fears that have depressed global commodity prices, with the international oil benchmark, Brent crude, down about 9% on the month, hitting a pre-crisis low Ukraine and less than 100 USD/barrel.
That slowdown is also due to reflect the delay of the fuel tax cut. Government interventions to reduce import duties and limit wheat exports have also helped.
However, consumer price increases are expected to continue at a strong pace in the coming months, with RBI projections suggesting inflation remains above the upper end of the 2-target range. 6%.
The near-term inflation outlook remains uncertain as the government’s efforts to rein in rising consumer prices may be less effective due to uneven rainfall and weakness this year.
The government has asked the central bank to keep retail inflation at 4%, with a tolerance of plus or minus 2% of that rate, which is 2-6%.
With the inflation outlook elevated, the RBI was forced to raise the key repo rate for the first time in 4 years, lifting it to 40 basis points (bps) in an off-cycle meeting in May, a 50-point increase. next basis in June, and another 50 basis points larger than predicted this month, bringing the repo rate to 5.40%.
The repo rate is the RBI rate that lends money to commercial banks, and the latest inflation data suggests interest rates will continue to rise.
Earlier this month, the central bank left its inflation forecast for the current fiscal year unchanged at 6.7% and said retail inflation would remain above the allowable level above 6% for the first three quarters of 2022. -23.
Sources said on Thursday the government hopes to keep price momentum under control as key factors turn in favor, adding that India is “set up to become a developed economy” fastest growing in the world this year and next.”
Further analysis of the latest data shows that inflation in rural India fell sharply to 6.80% in July from 7.09% in the previous month.
In Urban area, CPI Inflation Rate fell to 6.49% last month from 6.86% in June.
Another data released by the National Statistics Office (NSO) on Friday showed industrial production rose 12.3% in June 2022 from a year ago, compared with a 19.6% increase. in May.
Industrial production took a hit due to the coronavirus pandemic in March 2020, when it fell by 18.7% and by 57.3% in April 2020 due to a slowdown in economic activities following the imposition of place lockdown orders to limit the spread of coronavirus infections.
