The government will release the retail inflation number based on the Consumer Price Index (CPI) for August and the industrial growth number for July on Tuesday. While the expectation is that retail inflation could range from 6.8 to 7.1 per cent, the industrial growth rate could be 5 per cent.

Retail inflation for July was 7.44 per cent. The industrial growth rate in June was recorded at 3.7 per cent.

As monsoon remained erratic, food prices, especially cereals, remained high. Though TOP-led vegetable prices (Tomato, Onion and Potato) have come down, not much impact is seen on print inflation. Economists feel that retail inflation is likely to be around 7 per cent. If it happens, this would be the second successive month of inflation higher than the upper band of the targeted inflation range (4 per cent with two per cent movement in each direction). However, core inflation (headline inflation minus food and fuel inflation) is likely to be around 5 per cent, which comforts the Monetary Policy Committee (MPC) for not revising the policy rate.

In a note last month after the release of July numbers, economists at HDFC Bank said the jump in the July inflation print does shift up the inflation trajectory for the coming months, even if it is assumed a reversal in vegetable prices in September/October. Tracking the mandi prices in August so far, tomato prices remain elevated, and onion prices have also increased. “We are tracking August inflation at 7.2 per cent so far,” the note said. The RBI revised its inflation forecast for Q2 FY24 to 6.2 per cent last week, but the note sees significant upside risk to this forecast now.

Similarly, CARE said that even though the rise in vegetable prices is transient, the sustained price pressures in categories like cereals, pulses, spices, and milk can keep food inflation elevated in the near term. Higher food prices for longer could impact households’ purchasing power and dent consumer sentiment. This could affect the growth prospects, especially amid external headwinds and uncertainty regarding rural recovery. The RBI knows these challenges and will closely monitor these evolving trends to decide its future policy course. However, given the supply-driven nature of these inflationary pressures, RBI has limited space to act. Hence, the government’s timely supply-side interventions are essential to close the supply-demand gap before the festive season.

Though “the moderation in core inflation is reassuring, the possibility of elevated headline numbers in the upcoming months has pushed the expectation of a rate cut by the RBI to the next fiscal,” the note by CARE said.

A note by India Ratings & Research (Ind-Ra), prepared post-release of July data) says core inflation in July 2023 came in at 4.94 per cent, dipping below 5 per cent mark after April 2020. This indicates that input costs of the manufacturing sector, unlike last year, are currently benign, and the gradual impact of the monetary tightening by the RBI is becoming visible in the economy. “Ind-Ra opines that the core inflation is likely to hover around 4.7-4.9 per cent range in the foreseeable future given the stubborn nature of prices of items within core such as health, education, clothing & footwear and personal care & effects. We, therefore, maintain our view of status quo on policy rates in FY24,” it said.