Inflation in India at 5-month low, but still above tolerance level

Retail inflation in India moderated to a five-month low in July on the back of easing of food prices, bringing relief for policymakers, who are battling price pressures. However, the overall number still remains above Reserve Bank of India's upper tolerance level for the seventh consecutive month.
 
Data released by the National Statistical Office (NSO) showed retail inflation, as measured by the consumer price index (CPI), rose an annual 6.7% in July, lower than the 7% in June. The food price index eased to 6.6% during the month from 7.6% in June as supplies improved and measures undertaken by the Centre and the RBI fed through the system.
 
Rural inflation was higher at 6.8%, while urban was at 6.5%. Out of the 23 states and union territories, 15 had an inflation rate above 6%, while eight recorded inflation below 6%. Soaring inflationary pressure had prompted RBI to raise interest rates and in its recent review it hiked interest rates by 50 basis points.
 
The retail inflation data showed vegetable price rose an annual 10.9%, while fuel and light prices rose 11.8% during the month due to increase in crude oil prices. Easing of global commodity prices due to fears of recession in the developed world may also have a cooling effect on domestic prices.
 
“Though July print is above RBI’s target for the seventh straight month, we firmly believe that the downward trajectory of inflation has started in India (and possibly in the US also). Core CPI (minus food and fuel) also moderated to 10-months low to 5.79% in July,” said Soumya Kanti Ghosh, group chief economic adviser at State Bank of India.
 
Economists said they still expect the central bank to raise interest rates in the months ahead to bring inflation closer to its target range. Separate data showed factory growth at a robust 12. 3% in June, lower than the 19.6% in May. Manufacturing sector grew at 12.5% during the month compared to a growth of 13.2% in June 2021.