As food prices drop, retail inflation eases to 5.59 per cent in July

Retail inflation eased to 5.59 percent in July mainly due to the lowering of food prices, according to official data released on Thursday.

The Consumer Price Index (CPI) based inflation was 6.26 percent in June and 6.73 percent in July 2020. According to the data released by the National Statistical Office (NSO), inflation in the food basket slowed down to 3.96 percent in July from 5.15 percent in the previous month.

Earlier this month, RBI projected the CPI inflation at 5.7 percent during 2021-22, 5.9 percent in the second quarter, 5.3 percent in third, and 5.8 percent in the fourth quarter of the fiscal, with risks broadly balanced.

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CPI inflation for the first quarter of 2022-23 is projected at 5.1 percent. The Reserve Bank of India, which has been mandated by the government to keep the retail inflation at 4 percent with 2 percent margin on either side, mainly factors in the CPI-based inflation while deciding its bi-monthly monetary policy.

India’s inflation rate has been above the RBI’s tolerance band of 6 percent for the last two months due to which it had to lower its rates earlier this month.

The surge in the commodity prices across the world is one of the key reasons behind the inflation spike in the country. In May 2021, crude oil crossed $65 per barrel, more than double than last year. Price of vegetable oils, reached a decadal high to 57 percent in April 2021.

The surge in the vegetable prices in the initial months of lockdown last year was the reason behind the higher levels of food inflation. The disruptions in supply chain due to different lockdown norms of different states delayed the inter-state supply of vegetables. As a result, the demand for certain vegetables like onion went up, and hence there was a surge in prices.

On the other hand, despite a surge in food prices globally, the vegetable prices in India have now come down due to the reopening of states post lockdown. Due to the falling food prices, the retail inflation has also eased down.