Prices of meat, fish, cooking oil, fruits are falling. Yet, retail inflation (CPI) has risen in August!

The retail prices of meat and fish, oils and fats, fruits and transport and communications seem to be on the decline. This is what the consumer price index (CPI) for the month of August reveals.
 
The overall retail inflation is once again back at 7 per cent in August as against 6.71 per cent in July 2022. The prices of certain items like cereals, eggs, milk, vegetables, spices etc are still ruling high.
 
The inflation actually peaked in April 2022 when it reached 7.79 per cent. In the subsequent month, it fell to 7.04 per cent in June and 7.01 per cent in July. In fact, the RBI Governor himself went on record to say that retail inflation has peaked.

"The recent softening of commodity prices and supply chain pressures have eased the terms of the trade shock that India faced in the aftermath of the pandemic and the war. With the consequent easing of imported inflation pressures, India’s CPI inflation has peaked in April 2022," said Das recently.
 
The RBI has kept the inflation forecast at 6.7 per cent for the entire year 2022-23, which is much higher than the targeted 4.0 per cent. The inflation forecast is higher than the upper tolerance band of 6 per cent. Higher inflation will require some more doses of rate hikes. The RBI has already hiked the repo rate by 140 basis points to 5.40 per cent post the Russia -Ukraine conflict when the crude oil prices flared up.
 
Facing historically high inflation, the global central bankers are actually moving in a synchronised manner to tame inflation. The ECB raised interest rates by 75 basis points from 0.50 per cent to 1.25 per cent last week in order to reduce inflation from 9.0 percent to a targeted 2.0 percent. The US Fed rate is between 2.0 to 2.50 per cent with expectations of another 75 basis points hike in the next policy meeting.
 
US Fed chairman Jerome Powell has been making hawkish statements that the world's largest economy will have to keep interest rates high for some time to check historically high inflation. Clearly, the US economy will slow down.
 
To put things in perspective, Nirmala Sitharaman, the finance minister, last week said that states and fiscal policy, in addition to monetary policy, have a role to play in managing inflation. Without providing the central bank with any specific direction, Sitharaman said that "the RBI will have to synchronise somewhat, may not be as synchronised as other western developed countries would do."
 
In the post-pandemic period, fiscal and monetary policies had worked in tandem to provide liquidity as well as offer low-interest rates to industry and individuals. 

"The current situation is one where monetary policy by itself may not be sufficient to control inflation completely and fiscal interventions will also play a crucial role, which makes the role of the government equally important," says Samantak Das, Chief Economist and Head of Research and REIS, JLL, India.
 
"This assumes greater significance when India is projected to be among the fastest growing economies globally, whereas the developed countries face a slowing growth curve. This needs monetary and fiscal policies to work together to ensure that growth remains on track even as inflation controlling measures continue to bring it within the target band," adds Das.
 
In fact, the states also have to play a role in fighting inflation. The finance minister recently said that it is unreasonable to hold the centre responsible for price increases, noting that states with uncut fuel taxes are seeing inflation rates that are greater than the national average.
 
According to CPI data, there are close to a dozen states that have inflation above the national average. "The reasons for higher inflation for some states is a combination of supply side as well as input cost factors. While local fuel cess and duties have caused fuel prices to vary across states, causing varying inflation levels, states which have cut VAT and duties have managed to get a slight handle on their inflation," says the economist.
 
"States with more efficient supply chains have been able to maintain demand-supply balance and hence lower inflation. Living costs also vary across states, with urban centres in these cities seeing higher rents (real estate costs for product storage, selling as well as house rents) and greater demand. As a result, states with a greater number of urban centres have faced a higher inflationary effect," says Das.
 

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Also read: India's retail inflation jumps to 7 per cent in August on higher food prices