India's Retail Inflation Anticipated To Fluctuate Within 5.5% - 6.6% Range

The Consumer Price Index (CPI) points to potential fluctuations in retail inflation in India, ranging from 5.6 to 6.6 per cent for July. This variation is primarily attributed to a surge in expenses within the food sector. The unveiling of this statistic by the government is scheduled for Monday.

Over the past two months, food costs, which constitute around half of the inflation basket, have surged notably. This increase is largely due to irregular monsoon patterns across the country, causing wholesale tomato prices to skyrocket by over 1,400 per cent in the last three months.

In June, the inflation rates for both retail items and food stood at 4.81 per cent and 4.49 per cent, respectively. While experts predict a potential retail inflation increase ranging from 2 to 6 per cent, with a median rate of 4 per cent, the likelihood of India following suit with the US Federal Reserve and European banks in raising interest rates remains low. Analysts project that any such rate hike would be more feasible in the upcoming fiscal year (FY25).

In June, the Monetary Policy Committee (MPC) presented its projection for the consumer price index (CPI) inflation for the fiscal year 2023-24. Their forecast indicated an overall CPI inflation rate of 5.1 per cent, with the first quarter (Q1) anticipated at 4.6 per cent, the second quarter (Q2) at 5.2 per cent, the third quarter (Q3) at 5.4 per cent, and the fourth quarter (Q4) at 5.2 per cent.

The substantial rise in food expenses, coupled with monsoon dynamics and potential increases in fuel costs, has led to a shift in the fiscal year's outlook. The Monetary Policy Committee (MPC), in its August review, highlighted that the notable increase in vegetable prices, especially tomatoes, is likely to exert upward pressure on short-term headline inflation trends. Nevertheless, the entry of new market players is expected to counterbalance this rise.

According to the Monthly Economic Review published by the Economic Affairs Department of the Finance Ministry, recent price hikes in fruits, vegetables, pulses, and related products have been driven by weather-related disruptions. This has resulted in consecutive food price hikes throughout June 2023.

The report also underlines that despite recent inflation containment, persistent supply-side disruptions, including El Nino impacts, have prompted both the RBI and the government to maintain vigilance and readiness for appropriate policy actions.

Rahul Bajoria, chief India economist at Barclays, cited by Reuters, stated, "There are no signs of any sequential moderation in food prices in August; although it is still early in the month, we expect CPI inflation prints to remain elevated in the next couple of months and then start easing in Q4 2023."

The progress of the monsoon and kharif sowing in July has significantly improved; however, close monitoring is required due to uneven rainfall distribution. Crude oil prices have risen due to production cuts. The Reserve Bank's enterprise surveys indicate that manufacturing, service, and infrastructure businesses anticipate decreased input costs but elevated output prices.