Inflation has crossed the mark of 7% in July which was 4.87% for June; Prices of vegetables, fruits and cereals rises in July. In April 2022, Inflation recorded at highest level which was at 7.79%
Hike in Vegetable Prices, especially tomatoes prices were the responsible factors for rise in retail inflation to 7.4% (Image: File)
India’s retail inflation soared to a 15-month peak of 7.44% in July 2023, propelled primarily by a surge in vegetable prices, as per data released by the National Statistical Office (NSO) on Monday.
The latest inflation figure is a marked escalation from the 4.87% recorded in the previous month, reflecting a substantial spike in the prices of food items, particularly vegetables. This surge in inflation, classified as “high severity,” has raised concerns among economic experts. While the inflation in consumer food price reached at 11.51% and food and beverages basket rose to 10.55% in July.
The upward trend in inflation is notably driven by several factors, including the escalation in prices of vegetables, cereals, pulses, spices, and milk products. The inflation rate had last crossed the 7% threshold in September 2022, with the previous highest point registered at 7.79% in April 2022.
It is significant to note that this represents the third instance this year and the seventh instance since July 2022 that retail inflation has exceeded the upper limit of the 4+/-2% range established by the Reserve Bank of India (RBI) as part of its medium-term inflation target. The RBI uses the retail inflation data as a pivotal factor in determining its benchmark interest rate (repo rate) decisions.
The impact of rising food prices extended beyond retail inflation, influencing the wholesale level as well. The wholesale price index-based inflation recorded a notable uptick to (-)1.36% in July from (-)4.12% in June, albeit continuing in a deflationary zone on a year-on-year basis for the fourth consecutive month. Data furnished by the Ministry of Commerce and Industry underscores this trend.
This surge in inflation arrives even as the Reserve Bank of India maintained the key repo rate at 6.50% during its recent monetary policy review. While the monetary policy stance remained as ‘withdrawal of accommodation,’ the RBI revised its inflation projection for FY2024 from 5.1% to 5.4%, indicative of the prevailing inflationary pressures.
A noteworthy aspect is the projection by the RBI, foreseeing inflation to persist above 5% through the first quarter of FY2025. Moreover, the ongoing quarter (July-September) is expected to witness inflation levels reaching around 6.2%, as per the central bank’s estimates.
This inflationary surge is significantly attributed to the Consumer Food Price Index (CFPI), which witnessed a notable rise of 11.51% in July compared to 4.55% in the previous month. The segment of food and beverages, encompassing 45.86% of the overall consumer price index (CPI), recorded an inflation rate of 10.57% in July, up from 4.63% in June.
A deeper analysis of the components reveals that the inflation rate for cereals and products rose to 13.04% in July from 12.71% in June. The most notable surge was observed in the vegetable category, which leaped to 37.34% in July from a deflation of -0.93% in June. Pulses, milk, cereals, spices, prepared meals, snacks, sweets, and oils also demonstrated varying degrees of inflation.
While inflation in the fuel and light category decelerated slightly to 3.67% in July from 3.92% in the previous month, housing inflation eased from 4.56% to 4.47%.
Core inflation, which excludes food and fuel, witnessed a decline to 5.1% in July 2023, reaching a 21-month low, according to estimates by ICRA. Notably, rural areas experienced a higher retail inflation rate of 7.63% compared to urban areas at 7.20%. Although food inflation in rural areas stood at 11.04%, lower than the 12.32% in urban areas, elevated vegetable prices propelled rural inflation.
Several states reported higher-than-average retail inflation rates in July, with Rajasthan topping the list at 9.66%, followed by Jharkhand with 9.16%, Tamil Nadu at 8.95%, Odisha 8.67%, and Uttarakhand reaching 8.58%.
