India's retail inflation fell in July to a near five-year low, as food prices eased from previous highs due to a base effect, government data showed on Monday. Annual retail inflation was 3.54 per cent in July, down from 5.08 per cent in June. The latest print is the lowest since August 2019.
Retail inflation fell below the Reserve Bank of India's (RBI) target of 4 per cent largely due to the high-base effect, suggesting the slower pace of price rises was temporary. The inflation rate was last recorded below 4 per cent in September 2019.
"Moderation in retail inflation was on expected lines. A favourable base from last year largely pulled down the headline inflation below 4 per cent," said Swati Arora, economist at HDFC Bank.
Prices of food, which account for nearly half of the retail inflation, rose 5.42 per cent from last year in July, compared to a 9.36 per cent rise in June. Vegetable prices rose 6.83 per cent year-on-year in July against 29.32 per cent in the previous month.
The inflation rate for cereals was 8.14 per cent in July compared to 8.75 per cent in the previous month, while that of pulses was 14.77 per cent during the month from 16.07 per cent in June. "On a sequential basis, food momentum continued to remain high largely due to high vegetable and pulses prices," Arora said.
India's central bank kept its key interest rate unchanged for a ninth straight policy meeting last week, focusing on bringing inflation down. The RBI Governor Shaktikanta Das said the country's food inflation remained "stubbornly" high and it was important for the monetary policy to stay the course in bringing inflation down towards its medium-term target of 4 per cent.
The RBI expects inflation to average 4.4 per cent in the July-September period and 4.7 per cent in the October-December period. Core inflation, which strips out volatile food and energy prices, continued to hover around 3 per cent and was estimated between 3.35 per cent and 3.40 per cent in July from 3.08 per cent and 3.14 per cent in June, according to three economists.
India is set to receive normal rainfall during the annual monsoon, which is key to the Asian country's economy, but policymakers remain concerned as the distribution has not been very even.
