Retail Inflation cools to 6.83%, Food Inflation falls to 9.94%

In August, India's consumer price inflation (CPI) dropped to 6.83% from 7.44% in July. This was mainly due to lower food prices, with food inflation decreasing from 11.51% in July to 9.94% in August. However, the inflation rate is still higher than the Reserve Bank of India's (RBI) acceptable limit of 6% for the second consecutive month.

Aditi Nayar, Chief Economist at ICRA, predicts that CPI inflation will be around 5.3-5.5% in September 2023, resulting in an average of 6.6% for the second quarter of fiscal year 2024. She expects the RBI's Monetary Policy Committee (MPC) to maintain the status quo in October 2023, being cautious due to uncertain factors like food inflation and high crude oil prices.

The decrease in CPI inflation was primarily driven by lower prices of vegetables, meat, eggs, and fish. Some moderation was observed in clothing, footwear, housing, and miscellaneous items. However, the prices of cereals, milk, fruits, and spices rose notably in August compared to July.

Among food items, the inflation rate for vegetables fell from 37.4% in July to 26.1% in August 2023, contributing significantly to the overall decline in CPI inflation.

Despite the temporary drop in tomato prices, the outlook for food inflation remains uncertain due to factors like onion prices and delayed sowing of certain crops. Adequate rainfall in September could help protect crop yields, but reservoir levels suggest a potentially delayed start to winter crop sowing.