Consumer Price Index (CPI) inflation for the month of July rose to a 2-year high of 6.07% versus 5.77% in May. Food price inflation rose to 8.35% versus 7.79% in May. Both rural and urban inflation rose to 6.66% and 5.39% from 6.29% and 5.26% respectively. Vegetable inflation declined marginally to 14.06% versus 14.74% in June, but pulses inflation rose to 27.53% versus 26.86%. Housing inflation dipped to 5.42% versus 5.46%, and clothing, footwear inflation rose to 5.23% versus 5.01%. Fuel, light inflation came in at 2.75% versus 2.92% in June.
RBI governor Raghuram Rajan in his last monetary policy review this week had flagged upside risks to inflation. ‘The recent sharper-than-anticipated increase in food prices has pushed up the projected trajectory of inflation over the rest of the year. Moreover, prices of pulses and cereals are rising and services inflation remains somewhat sticky,” Rajan said. “The prospects for inflation excluding food and fuel are more uncertain; if the current softness in crude prices proves to be transient and as the output gap continues to close, inflation excluding food and fuel may likely trend upwards and counterbalance the benefit of the expected easing of food inflation. In addition, the full implementation of the recommendations of the 7th central pay commission (CPC) on allowances will affect the magnitude of the direct effect of house rents on the CPI,” he cautioned, adding that inflation projections as given in the June bi-monthly statement, i.e. of a central trajectory towards 5 per cent by March 2017 with risks tilted to the upside, are retained. “In terms of immediate outcomes, much will depend on the benign effects of the monsoon on food prices,’ he said.