CPI Inflation In August Eases To 3.65%, Second Lowest In Five Years

India's retail inflation, measured by the Consumer Price Index (CPI), eased to 3.65 per cent in August 2024, marking the second-lowest level in the last five years, according to official data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Thursday, September 12. This is a sharp reduction from the 6.83 per cent inflation recorded a year ago in August 2023. Meanwhile, the country’s industrial output, measured by the Index of Industrial Production (IIP), grew by 4.8 per cent in July 2024, reflecting steady growth in India's industrial sector.

The CPI inflation in July 2024 was slightly lower at 3.6 per cent, maintaining a trend of subdued inflation within the Reserve Bank of India’s (RBI) target band of 4 per cent. The drop in August was driven by moderating food prices and a fall in the cost of key commodities such as fuel and light.

Food Inflation Moderates
According to data released by the National Statistical Office (NSO), inflation in the food basket—a major component of CPI—eased significantly to 5.89 per cent in August 2024, compared to a much higher 9.94 per cent in August 2023. The decline was driven by falling prices in essential food items such as spices, meat, fish, and pulses. In July 2024, food inflation stood at 5.42 per cent.

The Ministry noted that tomato prices exhibited the largest year-on-year drop, with inflation for tomatoes plummeting to -47.91 per cent, while its month-on-month price change fell by 28.8 per cent. This significant decrease in tomato prices was a key contributor to the overall moderation in food inflation.

The rural and urban CPI inflation rates in August 2024 were recorded at 4.16 per cent and 3.14 per cent, respectively, indicating broad-based price moderation across both urban and rural regions.

Second Lowest Inflation in Five Years
The August 2024 inflation rate is the second lowest in the last five years. "This is a promising sign for the economy, as easing inflation can boost consumer spending and help stabilise the cost of living," said Sanjeev Agrawal, President of the PHD Chamber of Commerce and Industry (PHDCCI). He added that CPI inflation had remained under the RBI's target band for two consecutive months, which bodes well for India’s macroeconomic stability.

Agrawal also pointed out that the decline in prices of fuel and light, coupled with the second-lowest food inflation since June 2023, played a critical role in bringing inflation down to this level.

Industrial Output Sees Steady Growth
India’s industrial output, based on the Index of Industrial Production (IIP), recorded a 4.8 per cent growth in July 2024, reflecting a steady recovery in the country’s manufacturing and production sectors. The IIP growth was primarily driven by a 4.6 per cent rise in manufacturing output, along with a robust 12 per cent growth in capital goods, and a 6.8 per cent increase in intermediate goods.

"The consistent growth in IIP indicates sustained momentum in India's manufacturing sector," said Agrawal. "Industrial growth is bolstered by increased production in critical segments like capital goods and intermediate goods, which is a positive sign for continued economic recovery."

Outlook for Inflation and Industrial Growth
Looking ahead, experts expect inflation to pick up slightly in the coming months. Nishant Shrivastava, CEO of Torus Wealth, noted that India's retail inflation hitting a near five-year low of 3.65 per cent in August 2024, down from 6.83 per cent a year ago, is a positive development. Despite rising vegetable prices, the overall trend indicates easing inflationary pressures, signaling stability and strength in the economy.

Despite this, analysts remain optimistic about future inflation trends. The strong monsoon season is expected to bolster kharif production, improving food supplies and further softening CPI inflation in the coming months.

In terms of industrial production, continued momentum is expected as key industries such as manufacturing and capital goods continue to show strong performance. Industry leaders believe that the positive trends in both inflation and IIP growth indicate a stable and resilient economic outlook for India.

The moderation in CPI inflation, coupled with steady industrial output growth, suggests that India's economy is on a firm footing as it moves into the latter half of 2024. The government's efforts to maintain price stability while fostering industrial growth appear to be paying off, with both inflation and output growth staying within healthy ranges. As long as food supplies improve and manufacturing continues to expand, experts predict a stable economic trajectory for the country.