India's retail inflation rate in August grew 3.21 percent, remaining within Reserve Bank of India's (RBI) target level of 4 percent, latest price data released by the Central Statistics Office (CSO) on September 12 showed.
Retail inflation for July stood at 3.15 percent.
Food prices, which is a gauge to measure changes in kitchen budgets, grew 2.99 percent in August compared to 2.36 percent in July. Inflation rate in cereals and products stood remained unchanged at 1.3 percent while vegetables inflation stood at 6.90 percent in August versus 2.82 percent in July. Pulses and products recorded an inflation of 6.94 percent in August.
"Inflation for household goods and services is on declining trend from January 2019 and for transport and communications has declined in August 2019 to 1.2 percent from 1.6 percent in June 2019. This suggests weak demand conditions in the economy," said Devendra Kumar Pant, Chief Economist and Senior Director, Public Finance, India Ratings & Research (Fitch Group).
India is in the throes of an economic slowdown. GDP grew 5 percent in April-June 2019, buffeted by weak household spending and muted corporate investment.
On August 23, Finance Minister Nirmala Sitharaman announced a slew of measures like eased foreign investment rules, concessions on vehicle purchases and encouraged banks to make loans cheaper to spur growth from a five-year low.
To tide over a cash crunch in the banking sector, the RBI cut interest rates by 110 basis points this year to boost loans and revive investment. This was followed by the finance minister announcing the government's decision to inject Rs 700 billion to recapitalize state-run banks and encourage them to lend.
"We expect RBI to cut policy repo rate in its October 2019 monetary policy review. However, its impact on growth is contingent on a) faster transmission and b) consumer response to rate cut. In a situation of declining income growth and fall in household savings rate, the policy rate cut is likely to achieve limited objective," Pant said.
The national income data have reinforced deceleration signs that were emanating from a slew of shop-end data, such as car and consumer goods sales, often seen as proxy indicators to gauge trends in household spending.
It has been widely reported that automakers like Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Ashok Leyland and Honda Motorcycle & Scooter India have temporarily closed plants in the past few months. Initial reports for July suggest that the passenger car sales have slipped by over 29 percent.