India’s inflation declined to a 59-month low of 3.5 percent in July compared with 5.1 percent in the previous quarter, as a favourbale base helped contain pressures, according to data released on August 12.
Consumer inflation had touched 7.4 percent in July 2023.
"The food and beverages segment accounted for as much as 146 bps of the 154 bps dip in the headline inflation print between these months, as anticipated," said Aditi Nayar, chief economist, Icra.
Sequentially, however, there was 1.4 percent increase in prices in the consumer basket, with food prices rising 2.8 percent. Pulses inflation continued to remain in double digits, with cereal prices also rising 8.14 percent in July from the previous year.
"The major pain points remain in the cereals and pulses basket. While inflation numbers may come down due to this effect, the new crop will enter only post September which will determine the future course of price movements," said Madan Sabanvis, chief economist, Bank of Baroda.
The numbers are slighlty lower than the Moneycontrol poll forecast of 3.6 percent. The forecasts in the poll ranged from 3.24 percent to 4 percent.
Core inflation rose to 3.4 percent in July compared with 3.1 percent.
"Core inflation remained largely benign, rising to 3.4% in July, up from 3.1% in June, likely reflecting recent hikes in telecom tariffs and the upward revision of fuel prices in certain states," said Rajani Sinha, chief economist, CareEdge.
Future trajectory
Economists contend that inflation is likely to surprise on the downside compared with the Reserve Bank of India’s 4.4 percent inflation forecast for July-September 2024.
"With all of the 22 essential commodities reporting an easing in their YoY inflation rates in August 2024 (till Aug 10, 2024; as per the Department of Consumer Affairs data) relative to July 2024, the food and beverages inflation print should ease further in the ongoing month, thereby dampening the headline CPI inflation to 3.4% in August 2024," Nayar said.
Paras Jasrai of India Ratings and Research notes that retail inflation will likely breach the 4 percent mark in August.
While the central bank did not change the overall inflation outlook for FY25 from 4.5 percent, it did project a higher inflation of 4.4 percent from 3.8 percent for the second quarter of FY25.
Reserve Bank of India governor Shaktikanta Das on August 8 expressed concerns over elevated household inflation expectations, highlighting that fall in core inflation does not merit a change in monetary stance.
The Reserve Bank of India in its policy meeting concluded on August 8, kept the policy rate on hold for the ninth consecutive time.
"We continue to maintain that RBI will be on a status quo mode on rates for the October policy with likely shift in stance then. Scope for a shallow rate easing cycle could open from December but much will be data dependent both in India and the US,” said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.
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