July inflation peaked at 7.44 percent, expected to come down says Finance Secretary: Exclusive

Somanathan said the government is not worried about oil prices inching up as they have hovered around manageable levels so far.

Inflation in India has peaked after coming in at a 15-month high, and is expected to gradually come down, Finance Secretary TV Somanathan said.

The headline retail inflation number for July, released on August 14, came in at 7.44 percent, way above economists’ average expectations of 6.6 percent. July was the first time in five months that Consumer Price Index (CPI) inflation had come in above the upper bound of the Reserve Bank of India’s (RBI) 2-6 percent tolerance range.

Also Read: 10-year bond yield hits 7.25% as 7.44% inflation blocks way to cut policy rates

Even as the finance ministry expects CPI numbers to cool down going ahead, the government will continue to take more steps to contain inflation but avoid any knee-jerk reactions, Somanathan told Moneycontrol in an interview.

The markets as well as the RBI were prepared for a rebound in inflation in July, with the central bank on August 10 raising its CPI inflation forecast for July-September by 100 basis points to 6.2 percent even as its Monetary Policy Committee left the repo rate unchanged at 6.5 percent for the third meeting in a row.

Also Read: Crude oil prices decline 5% this week, hit 2-week low in 4th consecutive day of falls

On whether the government is worried about oil prices inching up going ahead, Somanathan said prices have hovered around manageable levels so far. Crude oil prices have seen a 5 percent drop over the week due to slowing growth in China and the possibility of further US interest rate hikes weakening fuel demand in the world's two biggest economies. As recently as August 10, though, prices had climbed to a nine-month high.

Also Read: What the economist who got July CPI inflation (almost) right thinks will happen next

According to Somanathan, the government has already taken a sufficient number of steps to keep a lid on inflation and the prices of vegetables, the component most responsible for higher headline retail numbers, should start easing soon.

MC Exclusive: India’s rice export ban may continue till at least November

The sharp rise in inflation was driven by higher prices for vegetables and key staples such as pulses, spices and cereals. The government has taken measures to rein in domestic prices and to ensure sufficient availability such as slashing retail prices for particular stocks of tomatoes via agencies, implementing a ban on export of a certain category of rice, as well as selling wheat under the open market sale scheme to bring down prices of essential commodities.