Inflation Zooms on Spike in Food Prices

Retail inflation accelerated for the fourth successive month to 6.93% in July, on the back of a further rise for food prices. The reading is well above the 6% outer band of the central bank’s inflation target.

The Reserve Bank of India's monetary policy committee had last week decided to hold key rates, stating that upside risks to food prices remained. The central bank has a 4% consumer inflation rate target with a two-percentage point band on either side.

Retail inflation, as measured by the consumer price index, has been above the 6% mark since April. It was 3.15% in July 2019. The government also revised upward the CPI data for June from 6.09% to 6.23%.

The likelihood that the MPC would persist with a rate pause in its October meeting has climbed sharply and a final rate cut is likely to be deferred to the December or February 2021 meeting.

Led by vegetables, pulses, spices, and meat & fish, food inflation neared the double-digit mark at 9.62% last month. The National Statistical Office also revised the June food inflation figure to 8.72% from 7.87% earlier. Inflation for pulses and products, meat and fish, and vegetables was 15.92%, 18.81% and 11.29%, respectively in July. Rural (7.04%) inflation was higher than urban (6.84%) in the past month.

Higher inflation during the ongoing pandemic is due to supply-side disruptions and not demand led.

Heavy rainfall in many areas may have also contributed to supply disruptions.

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