Retail inflation fell marginally to 5.3 per cent in August mainly due to easing food prices, official data showed on Monday.
The retail inflation based on the Consumer Price Index (CPI) was 5.59 per cent in July and 6.69 per cent in August 2020, PTI report said.
As per the data released by the National Statistical Office (NSO), inflation in the food basket was 3.11 per cent in August compared to 3.96 per cent in the preceding month.
The Reserve Bank had kept the key interest rate unchanged in its monetary policy review in August. It focuses mainly on the CPI while deciding its bi-monthly monetary policy.
The RBI has projected the CPI inflation at 5.7 per cent during 2021-22 -- 5.9 per cent in the second quarter, 5.3 per cent in third, and 5.8 per cent in the fourth quarter of the fiscal, with risks broadly balanced. CPI inflation for Q1 2022-23 is projected at 5.1 per cent.
According to CARE Ratings, CPI inflation for August came in at 5.3 percent which is lower than our expectation of 5.6 cent. "While a downward movement from July (5.6 percent) is a welcome sign, we believe this is more due to base effects as inherent inflation potential is elevated
Inflation for food products and beverages is at 3.8 percent while food inflation is 3.1 percent. But inflation for edible oils has soared by 33 percent, pulses 8.8 percent, eggs by 16.3 percent and meat 9.2 percent.
The downward trajectory for food inflation is more due to fall in vegetable inflation which has moved to (-)11.7 percent.
The relatively good sowing numbers for kharif crop augurs well for this part of food inflation though concerns remain on edible oils.
The miscellaneous products category registered 6.4 percent increase in the index with transport and communications (10.2 percent), health (7.8 percent), recreation (6.5 percent), and household goods (5.5 percent) being up.
Some of these categories like household goods can militate against demand this festival season.
Higher recreation inflation is mainly due to suppliers increasing costs as they are not fully operational.
Health inflation is a worry again as households have been spending a lot on healthcare which in turn will reduce the purchasing power and can affect demand this festival season. This holds for rural India too this time.
Personal products saw inflation moderating which is a positive sign. Clothing inflation at 6.8 percent is also high and has been intransigent in this year so far. Fuel and light inflation is also high at 13 percent. Therefore, on the whole the comfort level from the lower CPI inflation is not commensurate with the level of decline. For the next two months, inflation will trend downwards as the base effect will provide this support. We do believe inflation for the year will average around 5.5 percent with an upward tendency, Care Ratings said.
D.R.E. Reddy, Chief Executive Officer, CRCL LLP, said the CPI data for August easing to a four-month low of 5.30 percent is positive within the 6 percent limit and is the outcome of the various measures taken by the Central Bank and unlocking measures by the State Governments. "This number is further expected to decrease given the abundant monsoon experienced. The recorded fall in food inflation is expected to continue for the next few months.
"The household income has also seen an increment, which points towards a rise in disposable income in the hands of the common man. Prospectively, the relaxation of COVID restrictions has helped eradicate the supply-side barriers. Overall, these numbers are indicators of the economy recovering strongly from the pandemic-induced disaster," he said.
Sreejith Balasubramanian, Economist – Fund Management , IDFC AMC, said, "With the August print of 5.3 percent, CPI inflation has moved further down from its peak of 6.3 percent in May and June, aided by softer prices of food and beverages and base effects. Core inflation remains elevated at 5.8 percent y/y in August and an average of 5.9 percent FYTD, but signs of a sustainable demand recovery apart from supply-side factors continue to remain important. The extent of manifestation of sequentially softer cereal and vegetable prices (based on available real-time data so far in September) in official CPI, sectoral supply adjustments, commodity prices, services inflation, etc. will be crucial ahead," Balasubramanian said.
Rajani Sinha, Chief Economist and National Director – Research at Knight Frank India, said ,“The moderation in CPI has been supported by the low base of last year. CPI remaining below 6 percent for last two months, will be comforting for RBI and will enable the Central Bank to keep interest rates low given the growth concerns. In fact, for the next few months, the CPI is likely to remain within RBI’s comfort zone supported by the high base of last year. Nevertheless, RBI will be cautious, as with growth picking up globally there is threat of demand side pressure on inflation gathering steam.”
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, said, "The headline inflation came in softer than our expectations largely led by the downward surprise of food prices. We expect the subsequent readings to remain fairly benign and much lower than RBI estimates. The softer inflation would provide relief to the policymakers and more room to move much slower in terms of policy normalization. We continue to expect only tweaks to liquidity tools to manage temporary liquidity surplus in the near term."
Radhika Rao, Economist & Senior Vice President, DBS Singapore, said, "August CPI inflation surprised on the downside, easing to 5.3 percent y/y vs 5.6 percent month before and compared to consensus at 5.7 percent. Inflation decelerated on the back of favourable base effects and moderate food price pressures, as most sub-segments trended down, barring oil and fats. Amongst the non-food categories, most eased on the month barring clothing & footwear as well as housing. Core inflation rose by a slower 5.8 percent y/y in Aug vs average 6.1 percent in the prior three months.
"Favourable base effects are expected to soften inflation readings to sub-5 percent in 4Q21, lending downside risks to the RBI’s projection for this quarter and the next. The inflation tailwind will allow the central bank to remain accommodative at the October policy review, with a bigger focus on liquidity management via absorption measures. On sequential basis, pipeline forces remain under watch, particularly due to the domestic fuel tax rigidity, service reopening gains and passthrough of higher costs on account of supply bottlenecks alongside firm input prices."
(With PTI inputs)
