Headline inflation has slowed in India mainly because of lower food prices, but the volatility of these prices remains an issue, Moody’s Ratings said.
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Volatile and high food prices remain a concern, but base effects may help temper India’s retail inflation pace in June and possibly even cool it below 4% over July and August, rating agencies and economists reckon.

Retail price rise had touched a 12-month low of 4.75% in May, even though food inflation stayed stuck at 8.7% for a second straight month. The National Statistical Office will likely release the Consumer Price Index data for June on Friday.

Headline inflation has slowed in India mainly because of lower food prices, but the volatility of these prices remains an issue, Moody’s Ratings said in a report this week. The agency also flagged stronger wage gains of more than 5% year-on-year.

The prolonged heatwave and the delayed start to the southwest monsoon was likely to have pushed June’s inflation to 5%, said Radhika Rao, executive director and senior economist at DBS Bank. Vegetable prices began to rise sharply as the month progressed, while telecom tariffs were also raised, she pointed out. 

With the monsoon regaining ground this month, vegetable prices were expected to moderate, and base effects would also push July-August inflation to sub-4%, she estimated. Ms. Rao, however, expects no interest rate cuts this year in light of the RBI’s signal that they would look through base effect-driven swings in readings and focus on sticky food pressures. 

In June 2023, retail inflation stood at 4.9%, before it surged to 7.4% and 6.8% in July and August, respectively.

India Ratings and Research expects retail inflation to have moderated to a 13-month low of 4.5% in June, due to a combination of the favourable base effect and a moderation in inflation of key items. But wholesale prices are projected to quicken at a 3.5% pace, from May’s 15-month high of 2.6% due to an unfavourable base.

“Prices of food items such as onion and potato continues to be high, despite softening of inflation in items such as tomato, pulses, milk and sugar,” the agency noted. Tomato inflation was at a six-month low of 29% as per Department of Consumer Affairs data for last month, it added.

Retail inflation eased to a three-month low, official data show. File
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India’s retail inflation eased to a three-month low of 5.1% in January from 5.7% a month earlier, with food price rise cooling a bit to 8.3% compared with 9.5% in December 2023.

January’s headline inflation pace is slightly higher than the 5% average projected by the Reserve Bank of India (RBI) last week for the current final quarter of 2023-24.

Any interest rate cut hopes will have to wait till at least August if not longer, as the Central bank expects inflation to average 5% in the April to June quarter as well, before it hits its stated inflation target of 4% in the next quarter.

While overall inflation faced by urban consumers dropped to 4.92% from 5.5% a month ago, food inflation remained sharp at 9%, sliding a tad from 10.4% in December. By contrast, rural consumers faced food inflation of 7.91% in January, down from 9% in December, but their overall price rise pace was higher than their urban counterparts at 5.34%.

On a month-on-month basis, the Consumer Price Index (CPI) dropped 0.11% while the Consumer Food Price Index fell 0.73%. A year ago, in January 2023, CPI inflation stood at 6.52%, while food price inflation stood at 6%.

Among food items, vegetables inflation remained above 27%, just slightly below the 27.6% recorded in December. The price rise in pulses also cooled marginally from 20.7% in December to 19.5% in January.

Cereals and spices inflation saw slightly better moderation, dropping from 9.9% and 19.7% in December to 7.8% and 16.4%, respectively. Fruits inflation also fell from 11.1% to 8.65% in January, while milk prices rose 4.6% compared with 5.1% in December.

Inflation in eggs, however, picked up pace to touch 5.6% in January, as did sugar and confectionary price rise which hit 7.5% from 7.1% a month earlier.

Most non-food items continued to see weaker upticks in prices compared to food items, with personal care and effects that had clocked a 7.3% rise in prices in December, dropping below 6%. Education inflation inched up a tad from 4.77% in December to 4.93% in January, but the pace of rise in healthcare costs dropped from 5.1% to 4.8%.

Half of the 22 major States for which the National Statistical Office calculates inflation rates registered a price rise below the national average of 5.1%, with Delhi recording the lowest inflation of 2.56%, followed by Madhya Pradesh (3.93%), Kerala (4.04%), and Tamil Nadu (4.12%).

On the other hand, five States reported inflation of over 6%, breaching the RBI’s tolerance threshold for price rise. Those States are Odisha (7.55%), Telangana (6.34%), Haryana (6.24%), Gujarat (6.21%), and Karnataka which witnessed 6.1% inflation in January.

“The correction in the inflation for food and beverages was led by a favourable base effect. While rabi sowing has caught up with last year’s level, reservoir storage remains well below the year-ago levels in most regions, continuing to imbue caution into the outlook for the rabi harvest,” Aditi Nayar, chief economist at rating firm ICRA, said.

CareEdge Ratings’ chief economist Rajani Sinha expressed concern about the persistent double-digit or high inflation in spices, pulses and cereals, despite a sequential moderation in vegetable and fruit prices. This, she said, poses a risk of potentially broadening price pressures and de-anchoring inflationary expectations.

“We foresee cumulative rate cuts of 50 to 75 basis points, commencing in the August 2024 Monetary Policy Committee meeting, and a stance change in the preceding review, after there is some visibility on the monsoon turnout,” Ms. Nayar reckoned. One basis point equals 0.01 percentage point.

Inflation in vegetables crashed from 26.1% in August to just 3.4% in September but inflation in cereals remained sticky at 11% and the pace of price rise in pulses accelerated from 13% in August to 16.4% last month. File
| Photo Credit: Sushil Kumar Verma

India’s retail inflation eased from 6.83% in August to 5.02% in September, breaking a two-month streak over the tolerance threshold of the Reserve Bank of India (RBI), with food price rise easing to 6.6% from almost 10% in the previous month.

Rural inflation stood at 5.33% in September, compared to 7% in August, while price rise faced by urban consumers moderated more sharply to 4.65% last month from 6.6% in August.

Inflation in vegetables crashed from 26.1% in August to just 3.4% in September but inflation in cereals remained sticky at 11% and the pace of price rise in pulses accelerated from 13% in August to 16.4% last month.

Base effects from September 2022, when consumer prices rose 7.4%, also helped ease the inflation rate which is lower than economists’ expectations but is almost in line with the central bank’s Monetary Policy Committee’s (MPC) projections.

The MPC raised its average inflation projection for the July to September quarter from 6.2% to 6.4% last week, and the numbers released by the National Statistical Office on October 12 put the average pace at 6.43%.

In the current quarter, the MPC expects inflation to average 5.6% with the full year 2023-24 averaging 5.4%. On a month-on-month basis, food prices fell 2.2% in September while overall consumer price levels dropped 1.1%.

Milk inflation eased slightly from 7.7% in August to 6.9% in September but some other key protein sources such as eggs (6.4%), meat and fish (4.11%) clocked higher inflation last month.

Price rice in spices remained almost unchanged at 23.1%, while fruits inflation jumped from 4% in August to 7.3% in September and sugar inflation accelerated to 4.5%.

New Delhi:

Retail inflation declined to a three-month low of 5.02 in September, mainly due to easing food prices, according to the government data released today.

The inflation has come back to the Reserve Bank’s comfort level of below 6 per cent after a gap of two months.

The inflation based on the consumer price index (CPI) was 6.83 per cent in August and 7.41 per cent in September 2022.

The previous low was in June this year when the reading stood at 4.87 per cent.

According to the data released by the National Statistical Office (NSO), the inflation in the food basket came down to 6.56 per cent in September from 9.94 per cent in the preceding month.

The Reserve Bank mainly factors in retail inflation while arriving at its bi-monthly monetary policy.
 

Vegetables on sale at Azadpur Mandi in New Delhi on July 12, 2023.
| Photo Credit: PTI

India’s retail inflation hardened in June to a three-month high of 4.81% from 4.31% in May, driven by a spike in food price inflation to 4.5% from less than 3% in the previous month, owing to rising costs faced by households for items like cereals, pulses, milk and tomatoes.

While the pace of consumer price rise in June broke a four-month streak of moderation from the 6.5% uptick recorded this January, urban consumers faced nearly 5% inflation in June with food price inflation nearly doubling from May’s 2.4% level to 4.3% last month.

June marked the fourth month in a row that retail inflation has stayed below the Reserve Bank of India’s (RBI’s) upper tolerance threshold of 6% for consumer price rise, but economists believe the ongoing upturn in vegetable prices and the “flooding plus uneven monsoon” situation in the country could exacerbate food price pressures on headline inflation.

Also read: Data | Parsing the inflation story of the past year

While the central bank is unlikely to shift from its hawkish ‘pause’ on interest rates at next month’s monetary policy review, this trend may push the prospect of rate cuts further into the horizon.

“The spike in vegetable prices is set to push the retail inflation to an uncomfortable 5.3-5.5% in July,” said Aditi Nayar, chief economist at rating firm ICRA, who believes the vegetable price shock could result in an overshooting of the 5.2% average retail inflation projected by the RBI’s Monetary Policy Committee for the July to September quarter.

Vegetables, in fact, remained in disinflation territory in June but only just, with prices just 0.1% lower than a year ago, compared to 8% lower year-on-year in May.

The “tomato shock” would mean vegetable price inflation would resurge sharply this month, while cereals and pulses will also remain under pressure as the area under irrigation is lower so far this year, cautioned Bank of Baroda chief economist Madan Sabnavis.

June’s Consumer Price Index surge comes on top of the 7% inflation recorded in the same month last year, when the Consumer Food Price Index had climbed 7.75%. Despite the high base, cereals recorded an inflation of 12.7% this June, breaking a three-month streak of moderating prices. Spices recorded a sharp 19.2% inflation in June, while pulses prices rose 10.5%, milk by 8.6% and eggs by 7%.

Edible oil prices, which had shot up after the Russia-Ukraine conflict broke out last year, helped cool the overall food inflation print, recording an 18.1% drop in prices from June 2022 levels.

Among the 22 major States, 13 recorded an inflation rate below the national average of 4.8% in June, but four States recorded 6%-plus inflation, led by Tamil Nadu (6.41%), and followed by Uttarakhand (6.32%), Bihar (6.16%) and Haryana (6.1%).

“The path ahead looks grim given the progress of monsoon and the spread across key areas in the Deccan Plateau region,” Mr. Sabnavis noted. Crisil chief economist Dharmakirti Joshi underlined that July and August are critical months for agriculture. “We will wait to watch how rains pan out,” he concluded.