The consumer price index(CPI)- based inflation came in at 6.7 per cent for August, from 6.73% in July, courtesy food inflation refusing to soften below 9 per cent.
India’s economy now struggles to deal with low growth and high inflation five months into the Covid-19 pandemic.
The retail inflation has now remained above the upper band set by the Reserve Bank of India of 6 per cent for nine consecutive months, though not successively for three financial quarters yet. Core inflation, too, has been inching up in the pandemic era, approaching 6 per cent now, from 4 per cent earlier this year.
Experts said consumers would continue facing higher prices than the preceding year because of provide and production bottlenecks as economic activity struggles to come back to normal. Nomura’s India Commerce Resumption index had hovered between 70 and 75 per cent in August, and stands at 82 per cent in mid-September. This hardening of consumer inflation above 6 per cent makes a further rate cut difficult in RBI’s monetary policy committee assembly in the first week of October, suggesting that the rate-cut cycle to propel growth could also be paused. Aditi Nayar, principal economist at ICRA, said the RBI could take a cautious step with regards to monetary stance, along with a pause in repo rates, as inflation is unlikely to recede meaningfully this month. “The CPI inflation is likely to print sub-4 per cent only in December 2020-February 2021, based on which a continuation of the accommodative stance appears dubious,” she said.
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Alternatively, beneficial base effect will come into play in the upcoming months. As retail inflation had inched up above 7 per cent towards the end of 2019, it is set to moderate in upcoming months.
Experts are factoring in a beneficial harvest of the kharif crop, owing to good rains. “With beneficial monsoon and prospect of good kharif and rabi crops, India Ratings expects that food inflation will ease from here on,” Sunil Kumar Sinha, principal economist at the agency said in a note. Inflation in vegetables, pulses, eggs, and meat remained above 10 per cent in most of these food categories. For the staples, rice and wheat, it dipped below 6 per cent after four months.
As consumer inflation remained tough, the wholesale price index (WPI)-based inflation made a comeback in August, with a marginal 0.16 per cent rise after four months in deflation. Wholesale inflation had reached a 4.5-year low of negative 3.4 per cent in June 2020, after which it has been consistently rising.
It was once pulled up by the rising prices of manufactured products in August, whose WPI inflation at 1.3 per cent is a 15-month high. A number of the sub-segment, prices of manufactured food products rose the fastest at 4.7 per cent, as vegetable oils and animal oils, fats saw a sudden uptick in their prices. Alternatively, seven of the 14 components inside the manufactured products segment have recorded a contraction in the newest month.
Then again, food inflation rose 3.8 per cent, lower than July’s 4.1 per cent. The modest decline in food inflation was once driven by the downtrend in items such as cereals, pulses, vegetables, and milk. Experts said the sudden inflationary sample in August indicates an improvement in purchasing power of manufacturers, and bodes polite for economic recovery.