As India’s retail inflation in the month of August eased to 6.83 per cent from 7.44 per cent in July, economists said that this was largely driven by moderation in food and vegetable prices, providing relief to households. Economists also stated that the headline inflation is expected to move down in September or later with correction in prices of vegetables. “Inflation at 6.8 per cent in August was largely food-driven as fuel and core inflation remained soft. If we take food out, headline inflation was only 4.8 per cent in August – unchanged from the previous month. We expect headline consumer inflation to move down in September as vegetables, particularly tomatoes, have seen a sharp correction. That said, cereals and pulses remain a worry as monsoon continues to be deficient and sowing in pulses has been 8.6 pr cent below last year’s levels. The recent spike in crude prices, if sustained, can create upside to fuel inflation which currently is at a benign 4.3 per cent,” said Dharmakirti Joshi, Chief Economist, CRISIL Limited.
This is the fourth month when inflation has come in higher than the upper bound of the Reserve Bank of India’s (RBI) tolerance level. The RBI has the mandate to keep retail inflation in the range of 2 to 6 per cent and after remaining above the upper limit for most of the 2022-23 financial year, inflation was in the central bank’s comfort zone this fiscal till June when it was at 4.87 per cent.
Further, experts also opined that the Reserve Bank of India (RBI) is expected to maintain status quo on rates and stance in the October MPC meeting. “We continue to expect the RBI to remain cautious as inflation remains well above the 6 per cent mark. We maintain our call for an extended pause as the RBI watches for the domestic growth-inflation mix, food prices trend and impact on inflation expectations, and impact of global monetary policy decisions on the INR,” said Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities. During its meeting in August, the monetary policy committee had decided to keep the repo rate unchanged at 6.5 per cent, maintaining the status quo for the third time in a row.
Here is what economists/experts have to say about the August CPI print…
Dharmakirti Joshi, Chief Economist, CRISIL Limited
We expect the Reserve Bank of India (RBI) to look through the July-August lift in inflation due to sharp spike in vegetable prices and maintain status quo on rates and stance in the October Policy. Food inflation will remain a key monitorable for them because, if sustained, it can spill over to other components and steer the headline CPI inflation above the RBI’s target. And this can constrain monetary policy as central banks do respond to inflation when it starts becoming generalised. We have already raised our inflation forecast to 5.5% for this fiscal from 5% earlier.
Nikhil Gupta, Chief Economist, MOFSL Group.
We believe that headline inflation could ease towards 5.7 per cent YoY in Sep 2023 and ease towards 5 per cent in 2HFY24. It means inflation of 5.4 per cent YoY in FY24, higher than our previous forecast of ~4.5 per cent. Thus, we expect RBI to keep interest rates unchanged in the foreseeable future.
Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities
August CPI inflation at 6.83 per cent was in line with our expectations of 6.86 per cent. Vegetable prices moderated and led much of the moderation in the August print. However, cereals and pulses continued to see upside and we need to be cautious of this trend being more sticky. Core inflation at 4.9 per cent was similar to July print though tad higher than our expectation. CPI inflation should moderate further to around 5.5 per cent by December if the current trend of food prices persist. We continue to expect the RBI to remain cautious as inflation remains well above the 6 per cent mark. We maintain our call for an extended pause as the RBI watches for the domestic growth-inflation mix, food prices trend and impact on inflation expectations, and impact of global monetary policy decisions on the INR.
Vivek Rathi, Director Research, Knight Frank India
Seasonal impact on food categories like vegetables, pulses and spices continue to keep the inflation level elevated. So far between Apr-Aug 2023, CPI has averaged at 5.8 per cent; and will likely reach the FY24 target set by the RBI in its last policy meeting. Considering that the RBI has projected Q2 FY24 CPI to be at 6.2 per cent, it indicates that the central bank has already factored in the inflationary risks in its policy decision so far. Thus, in its upcoming policy meeting in Oct 2023, the central bank will more likely continue with a rate pause, which is crucial, as any additional rate hike could potentially dent the spending capacity of the households.
Nish Bhatt, Founder & CEO, Millwood Kane International
India’s retail inflation in August has fallen to 6.83 per cent from a 15-month high of 7.44 per cent in July, led by cooling of food and vegetables prices, providing a relief to households. We see inflation still as a concern in the coming months due to rising crop and oil prices globally.
Rajani Sinha, Chief Economist, CareEdge Ratings https://www.financialexpress.com/policy/economy-joint-mechanism-for-aluminium-amp-steel-exports-to-us-3241377/
The moderation in CPI inflation to 6.8 per cent in August is comforting. The critical aspect to note is that core inflation has moderated to 4.9 per cent. While overall food inflation has moderated, the worrying aspect is that the sequential upward momentum has continued for some food items like cereals, pulses and milk. There is risk of further upward pressure on food inflation given the skewed rainfall and low reservoir levels. The recent spike in global crude oil prices is also concerning. However, a comforting factor is that the continued deflation in WPI will have a lagged impact on CPI inflation going forward. While RBI will remain cautious, we expect an extended pause in policy rates in 2023.
Manish Chowdhury, Head of Research, StoxBox
It is heartening to see that the recent bump-up in inflation was more transitory in nature owing to high vegetable prices, especially tomatoes. Moreover, today’s easing inflation trend confirms that the non-volatile or core sectors of the economy have actually seen receding inflationary pressures, further confirmed by the downward trajectory of the wholesale price inflation. Against the backdrop of a below-normal monsoon till date, rising concerns over a probable El-Nino and firming crude oil prices, we believe that a further confirmation about the easing inflation trajectory over the next few months would be a prudent call before concluding of a possible shift in the RBI’s monetary policy going forward.