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Protein based ingredients pumped up retail inflation to a six-month high of nearly 7 per cent in July as against 6.23 per cent in June.
All India Inflation rates based on Consumer Price Index (CPI) and Consumer Food Prince Index (CPFI) went up to 6.93 per cent and 9.62 per cent respectively. In fact food inflation is inching towards double digits after February registered headline number of 10.81 per cent.
Now all eyes are on August 31, when the Statistics Ministry releases GDP growth number for first three months (April-June) of FY 2019-20. This will complete the set of indicators for further policy action by the government as well as the RBI.
Earlier, industrial growth as reflected by the Index of Industrial Production (IIP) saw contraction limiting to over 16 per cent in June as against over 57 per cent in April and over 36 per in May. Keeping all these numbers in mind, the Monetary Policy Committee (MPC) will have a tough task in balancing between growth and inflation while deciding on change in policy rates.
Devendra Kumar Pant, Chief Economist at India Ratings, feels both industrial production and inflation trend suggests different monetary policy action. Retail inflation breaching MPC’s upper band of 6 per cent in seven out of last eight months makes the MPC’s task difficult.
“Ind-Ra believes MPC will watch inflation trajectory very carefully before taking decision on further rate cuts,” he said.
Higher inflation rate in July was mainly caused by six items — meat & fish (18.81 per cent), pulse & products (15.92 per cent), personal care & effects (13.63 per cent), spices (13.27 per cent), oil & fats (12.41 per cent), vegetables (11.29 per cent). The pandemic has cast its shadow over the retail price data collection also and data for states such as Manipur, Nagaland and Puducherry has not been released, as the price data was collected from less than 70 per cent markets.
Increase in inflation in July 2020 can be attributed to base effect. July 2019 retail inflation was 3.15. per cent. Inflation in April-September of 2019-20 was less than 4 per cent and this is now being reflected in higher inflation in April-July FY21.
According to Pant, Ind-Ra expects inflation to remain elevated in 1HFY21 (April-September, FY 2020-21) and would start declining in 2HFY21 (October-March), especially from November 2020.
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