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Reflecting the hardening of food prices such as tomatoes, inflation at both the retail and wholesale levels rose in July but remained within the comfort zone and led to calls for a further cut in interest rates.
Official data released on Monday showed that retail inflation rose marginally to 2.36 per cent in July as food items, including vegetables, became more expensive. Consumer price index (CPI) based inflation was at 1.46 per cent in June and much higher at 6.07 per cent in July last year.
Consumer food price inflation also rose marginally but remained in negative territory at 0.29 per cent in July, against a dip of 2.12 per cent in June. Similarly, wholesale price index (WPI) based inflation in July, at 1.88 per cent, also rose after four months.
It stood at 0.90 per cent in June and was at 0.63 per cent in July last year.
The rate of inflation based on WPI Food Index consisting of ‘food articles’ from primary articles group and ‘food product’ from manufactured products group increased to 2.12 per cent in July from a negative of 1.25 per cent in June.
Analysts expect inflation to harden due to the base effect, but remain within the comfort level.
“As the favourable base effect unwinds, vegetable prices record a seasonal hardening and the impact of house rent allowance pushes up housing inflation further.
“Core CPI inflation recorded a marginal uptick to 4 per cent in July 2017 from 3.9 per cent in the previous month,” said Aditi Nayar, Principal Economist, ICRA, adding that the CPI inflation could cross 4 per cent by October this year. “Based on this anticipated trajectory and the recent commentary by the Monetary Policy Committee, we see a low likelihood of further rate cuts in FY18,” she said.
Official expectations Calling the sudden spikes in prices of vegetables a seasonal feature, the country’s Chief Statistician TCA Anant said inflation is likely to remain in the targeted 2-6 per cent zone in the “foreseeable future”.
“Many of the factors of the overall inflation dynamic which was created during 2010 to 2013 have been removed or eased off. We are not looking at high levels of inflation ahead. Small variations of prices are bound to happen,” Anant, who is Secretary, Ministry of Statistics and Programme Implementation, told BusinessLine .
These spikes will continue until there is widespread use of cold storage and improved production methods, he said.
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