Retail inflation rises to 7% in August as food prices surge

New Delhi: India’s retail inflation rose to 7 per cent in August from 6.71 per cent in the previous month due to a sharp rise in food prices, as per the government data released on Monday.

Retail inflation has been above the Reserve Bank of India’s tolerance band for the eighth consecutive month. With the headline inflation coming above 6 per cent for the eighth month in a row, the RBI is on a brink of failing to meet its inflation mandate.

The Consumer Price Index (CPI) based inflation, which is factored in by RBI while deciding the monetary policy, has remained above the central bank’s comfort level of 6 per cent for eight months in a row.

The government has tasked the RBI to keep inflation in a range of 2-6 per cent. The RBI is deemed to have failed in its mandate if the average inflation remains outside the 2-6 per cent band for three consecutive quarters.

Retail food inflation surged to 7.62 per cent in August as against 6.75 per cent recorded in the previous month. There was a sharp jump in vegetable prices. Inflation in vegetables soared to 13.23 per cent in August.

In August, the price rise was sharper in rural areas than the urban areas. Rural inflation surged to 7.15 per cent in August from 6.8 per cent in the previous month. Urban inflation jumped to 6.72 per cent in August from 6.49 per cent in July 2022, as per the data released by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI).

Which goods have become costlier?

On an annual basis, the rate of price rise was in excess of 10 per cent in the case of vegetables, spices, footwear, and ‘fuel and light’.

However, there was a contraction in inflation in eggs and almost flat in protein-rich meat and fish in August.

The Price data are collected from selected 1114 urban markets and 1181 villages covering all States/UTs through personal visits by field staff of the Field Operations Division of NSO, MoSPI on a weekly roster.

During the month of August 2022, NSO collected prices from 99.9 per cent villages and 98.4 per cent urban markets while the market-wise prices reported therein were 89.6 per cent for rural and 92.8 per cent for urban.

RBI may hike interest rate

The RBI Governor-headed Monetary Policy Committee (MPC) is scheduled to be held from 28 to 30 September.

The key short-term lending rate (repo) has been raised by 140 basis points in three tranches since May this year. The last two hikes were 50 basis points each.

Aditi Nayar, Chief Economist with ICRA, told PTI that the sequential hardening in inflation was largely driven by a broad-based rise across the food segment, with higher inflation in cereals, pulses, milk, fruits, vegetables, and prepared meals and snacks.

“We now foresee a higher likelihood that the MPC will stick to the new normal rate hike of 50 bps in its September 2022 meeting, with the headline inflation having reversed to 7 per cent in August 2022” she said.

Former RBI Executive Director and MPC Member Mridul Saggar told PTI inflation is continuing to be higher than comfortable but is expected to trend down from October.

“With some more rate hikes, the problem of negative real deposit rates can be addressed… inflation could trend down from October due to base effects, lagged impact of monetary policy tightening and expected improvement in supply chains,” he said.

With inputs from agencies

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