Retail inflation fell to multi-year low of 3.78 per cent in July on account of cheaper food prices, including of vegetables, fruits and cereals.
The retail inflation based on Consumer Price Index (CPI) was at 5.40 per cent in June 2015. In July 2014, CPI based retail inflation was as high as 7.39 per cent.
Food inflation measured on Consumer Food Price Index during the month of July 2015 fell to 2.15 per cent as against 5.48 per cent recorded in June 2015, the official data released today showed.
Prices of vegetables fell sharply during the month from a year ago, with inflation printing a negative 7.93 per cent. Fruits also turned cheaper by 1.45 per cent during the month compared to the same month last year.
However, prices of protein-rich items such as pulses remained higher as inflation rose to 22.88 per cent. Also, meat and fish prices turned costly by 7.02 per cent.
Inflation in cereals and products was at 1.06 per cent, eggs at 2.8 per cent, milk and products at 6.12 per cent and that for oils and fats was at 2.78 per cent in July 2015.
Among others, sugar and confectionery prices contracted by 12.30 per cent.
Spices prices rose by 9.09 per cent, non-alcoholic beverages by 4.44 per cent, prepared meals, snacks and sweets by 7.7 per cent while that for food and beverages category by 2.89 per cent.
The fall of 3.78 per cent in consumer inflation was “much below the expectation” and was due to drop in food prices, India Ratings & Research Chief Economist Devendra Kumar Pant said.
“It is contradictory to daily price data released by the government. July vegetable prices has declined by nearly 8 per cent. This will have a favourable impact on bond pricing and increase in probability of monetary easing,” he said.
Crisil Chief Economist DK Joshi said the fall in inflation was a surprise on the positive side.
“Inflation is better than expected. However, the fall in inflation is a surprise on the positive side. For RBI’s next move, it makes the chances favourable and I think it would like to watch before going for rate cut,” Joshi said.
Inflation in fuel and light category stood at 5.36 per cent, housing at 4.44 per cent. Transport and communication prices fell by 0.35 per cent.
Inflation for rural segment was 4.44 per cent in July (from 6.07 per cent in June) and that for urban sector was at 2.94 per cent (as against 4.55 per cent in June), the data showed.
KILLOL PANDYA, SENIOR FUND MANAGER, LIC NOMURA MF ASSET MANAGEMENT, MUMBAI
“There is a sharp drop in food and core inflation, much more then what we were expecting. This gives an indication that food prices are actually lower than what people were expecting even without the base affect.
“It also shows that monsoon has been good. If Fed hike gets pushed back then we can see a rate cut by RBI by the end of September.”
R. SIVAKUMAR, HEAD OF FIXED INCOME, AXIS ASSET MANAGEMENT, MUMBAI
“The CPI number is significantly lower than expected. Clearly it looks like food is one significant factor on the downside. You have falling global crude prices and very minimal Minimum Support Price (MSP) increases that have enabled food prices to be very soft.
“This number is significantly below RBI’s projection for this period, and if the trend continues we should see RBI marking down its year-end inflation projection.
“By the time of the next policy meeting we will have had one more reading on CPI, and if the August numbers also point in the same direction then we can expect RBI to have a significant room for rate cuts.”
SUJAN HAJRA, CHIEF ECONOMIST AT ANAND RATHI, MUMBAI
“The sharp fall in food inflation has lead to sharp fall in overall inflation. The core inflation is higher than the headline numbers. There is a scope for at least a 25 basis point cut in interest rates by late September.”
JYOTINDER KAUR, PRINCIPAL ECONOMIST, HDFC BANK
“The headline number is a huge positive. We were below consensus at around 4.2 percent. The downside appears to come from food inflation which is a heartening trend.
“Along with the yuan devaluation move, I think there is a case for more (and) not less accommodation. The sooner the Reserve Bank of India steps on the easing peddle, the better it is.”
A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI
“The number is a big downside surprise, which means that CPI is in line to fall below RBI’s 6 percent trajectory by January. This increases chances of RBI cutting interest rate one more time in this fiscal year ending March.”