Retail Inflation Jumps To 15-Month High Of 7.44% In July
Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.
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By Linus Garg
First publised on 2023-08-14 16:05:27
About the Author
Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.
View all posts by this Author
A few days ago when the MPC held its August meeting to
decide on policy rates, a spurt in inflation in July was in the minds of the
members. That is why RBI governor Shaktikanta Das had said after the meeting that the
job on "inflation is not done" (despite retail inflation remaining within
the RBI band for four months). He added that "inflationary risks persist
amidst volatile international food and energy prices, lingering geo political
tensions and weather-related uncertainties." In India, the prices of many
vegetable, especially tomatoes, had gone through the roof due to seasonal
shortfall. The market buzz is that after tomatoes touching Rs 200 per kilo and
ginger going at Rs 300 a kilo, it is now
the turn of onions to score a century from their current level of Rs 30/40 per
kilo. The RBI had upwardly revised its inflation projection for FY24 from 5.1%
to 5.4% in the MPC meeting.
The worst fears of Das have come
true. From just 4.87 percent in June, retail inflation in India jumped to 7.44
percent in July, which is the highest in 15 months. It had remained within the
RBI band (2-6%) for four straight months till June. Now it has crossed the
upper threshold. Food inflation was 11.51% in July compared to 4.55% in June,
largely due to the spurt in vegetable and cereal products. It was a massive 37.43 percent year-on-year. But with supplies easing and tomato
prices cooling to Rs 100-120 per kilo (which is still high) and other
vegetables showing a declining trend too, it is expected that food inflation
will go down in August.
The RBI had also sucked out nearly Rs
1 lakh crore from the system by raising the incremental cash reserve ratio
(ICCR) to 10% on the incremental NDTL (net demand and time liabilities) over
the last three months. This was also done to tame inflation. But if the
inflation remains above RBI's upper threshold in August too, sparks can fly in
the next MPC meeting in October, more so as the festival season will push
demand. It is hoped that supplies will improve in August and things will be
normal on the food front if onions do not play spoilsport.
