CPI inflation hits 4-month low of 5.30% in August

By: |
Updated: September 14, 2021 7:43 AM

In the monetary policy statement last month, the central bank said the revival of the south-west monsoon and pick-up in kharif sowing, buffered by adequate food stocks, should help in containing cereal price pressures in the months ahead.

inflationImportantly, core inflation (excluding food and fuel) dropped to 5.5% in August from 5.7% in July, according to Icra.

Retail inflation eased to a four-month low of 5.30% in August, having remained within the central bank’s target band (2-6%) for a second straight month, as food inflation moderated further and base effect remained conducive, showed official data released on Monday.

The fall will likely ease pressure on the central bank for any calibrated liquidity normalisation early, and its accommodative stance may continue for a longer time, despite external headwinds. The global commodity prices, especially of oil, have been on the rise and the US Federal Reserve has signalled its intent to start scaling back its $120 billion-a-month quantitative easing later this year.

Finance minister Nirmala Sitharaman last month said the economy had not so far reached the level where liquidity support could be rolled back by the Reserve Bank of India (RBI). Of course, while retaining the repo rate last week, RBI raised its inflation forecasts.

Inflation in food products, which make up for about a half of the inflation basket, declined to 3.11% in August from 3.96% in the previous month, turning out to be the most important reason for the latest slide. In fact, the drop in headline inflation was broad-based, except for the price pressure in fuel, transport, clothing & footwear and health segments. Fuel and light inflation in August rose to 12.95% from 12.38% in the previous month. Not surprisingly, transport and communication inflation, too, remained elevated at 10.24% last month.

Importantly, core inflation (excluding food and fuel) dropped to 5.5% in August from 5.7% in July, according to Icra.

In the monetary policy statement last month, the central bank said the revival of the south-west monsoon and pick-up in kharif sowing, buffered by adequate food stocks, should help in containing cereal price pressures in the months ahead.

Nevertheless, inflation may remain close to the upper tolerance band up to the second quarter, but these pressures should ebb in the third quarter on account of kharif harvest arrivals and as supply side measures take effect, it said. “Taking into consideration all these factors, CPI inflation is now projected at 5.7% during 2021-22: 5.9% in Q2; 5.3% in Q3; and 5.8% in Q4 of 2021-22, with risks broadly balanced. CPI inflation for Q1:2022-23 is projected at 5.1%,” according to the MPC statement.

Aditi Nayar, chief economist at Icra, said the sequential decline in the headline and the core inflation in August will likely “allay the discomfort in the tone of the upcoming policy review, as well as the subsequent minutes of the MPC members”. Moreover, fears of immediate policy normalisation have been doused with the Q1 FY22 GDP growth being mildly lower than the MPC’s own forecast of 21.4%. “The stance and policy rate are likely to be left unchanged until strengthening domestic demand replaces supply-side constraints as the key driver of inflationary pressures,” Nayar said.

India Ratings principal economist Sunil Kumar Sinha expected the fall in Inflation to continue at least until November on account of base effect. In the December quarter, he said, it could decline to closer to the RBI’s targeted level of 4%, before inching up again in the last quarter of FY22.

Do you know What is India expected to grow 10 pc during current fiscal: NCAER Director General Poonam Gupt,FinMin releases Rs 9,871 cr grant to 17 state, Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Forex reserves down by USD 1.47 bn to USD 639.64 bn
2Net direct tax mop-up grows 74% at Rs 5.70 lakh cr so far this fiscal
3Don’t see RBI withdrawing ultra-loose policy in FY22: Former DG Gandhi