Retail inflation surges to 7.44 per cent in July

Retail inflation witnessed a 15-month high of 7.44 per cent in July as prices of vegetables and other food items spiked, said an official data on August 14.

The consumer price index (CPI) recorded a 15-month high of 7.44% compared to the previous month's 4.87%, primarily due to steep increases in vegetable prices. 

Food price inflation soared to 11.51% and the food and beverages basket experienced a rise of 10.57%. In particular, vegetable inflation rose to 37.34% from a -0.93% deflation in June.

The spike in food prices is not expected to sustain beyond November-December 2023 due to the shorter cycle of vegetable cultivation and potential government interventions. However, elevated vegetable prices and those of pulses and cereals could lead to higher than forecasted average headline inflation in the second quarter, exceeding the Reserve Bank of India's (RBI) projection of 6.2%.

While the wholesale pricing index (WPI) remained negative in July, it dropped sharply to -1.36% from June's 4.12%. The primary articles wholesale inflation rate hit a 116-month high of 7.57%, with food articles inflation hitting a high of 14.25%. Tomatoes, onions, and potatoes all saw significant price rises in July, contributing to the overall rise in wholesale vegetable prices to 62.12%.

The impact of growing vegetable prices was taken into account by the RBI, who increased their inflation prediction for the fiscal year to 5.4%. 

The central bank, however, anticipates that new market arrivals and the advancement of the monsoon will mitigate this increase. 

In August 2023, ICRA expected WPI deflation to reach 0.2% before changing into year-over-year inflation in September, following a five-month deflationary period.

The upward trend in global crude oil and edible oil prices, along with uneven domestic monsoon distribution, pose upside risks to the inflation outlook. Despite this, CareEdge Ratings anticipates subdued WPI inflation for the fiscal year in the range of 1-2%, which will have positive implications for retail inflation.

Overall, while vegetable prices may cool off after a few months, other factors such as global commodity prices and monsoon patterns could continue to influence India's inflation trajectory.

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