New Delhi, India
September 12, 2023
India’s retail inflation slowed to 6.83% in August from 7.44% in July, but it still remained above the Reserve Bank of India’s (RBI) tolerance band of 2-6%. This is the fourth instance of the retail inflation rate or the consumer price index (CPI) crossing the upper limit of the 4+/- 2 per cent band of RBI’s medium-term inflation target in this calendar year.
The fall in inflation was driven by a decline in vegetable prices, which fell 12.6% in August from July. However, food inflation as a whole rose to 9.94% in August from 9.31% in July. This was due to higher prices of cereals, pulses, and oils.
Core inflation, which excludes food and fuel prices, rose to 6.2% in August from 5.6% in July. This suggests that underlying price pressures are still building up in the economy.
The RBI is likely to keep interest rates unchanged in its next monetary policy review on September 20, as it balances the need to contain inflation with the need to support economic growth. However, the RBI may take other measures to cool inflation, such as increasing the amount of money banks have to hold in reserve.
The government has also taken a number of measures to cool inflation, such as increasing taxes on fuel and edible oils. However, these measures are likely to have a limited impact in the short term.
The RBI is likely to continue to monitor inflation closely and may take further measures to contain it if necessary.
In the meantime, consumers should brace for higher prices in the coming months.
Here are some additional analysis:
The decline in vegetable prices was due to a bumper crop and good monsoon rains.
Food inflation is still high, but it is coming down from its peak in May.
Core inflation is rising, which suggests that underlying price pressures are building up.
The RBI is likely to keep interest rates unchanged in its next monetary policy review, but it may take other measures to contain inflation.
Consumers should brace for higher prices in the coming months.
The sustained high inflation is a major concern for the RBI and the government. It is putting a strain on household budgets and could dampen economic growth. The RBI and the government will need to take coordinated action to bring inflation under control.
