CPI Inflation Eases To Three-Month Low In July

A woman carries crates on her head while walking along a street in Bengaluru, India, on Monday, June 21, 2021. Photographer: Dhiraj Singh/Bloomberg

CPI Inflation Eases To Three-Month Low In July

Retail inflation fell to its lowest since April, led by lower food prices.

Consumer Price Index inflation stood at 5.59% in July 2021 compared to 6.26% in June, according to data released by the Ministry of Statistics and Program Implementation on Thursday. Inflation in food and beverages eased to 4.46% compared to 5.58% in June. On a month-on-month basis, the consumer price index rose 0.74%.

A Bloomberg poll of 39 economists had estimated inflation at 5.72% for July 2021.

Inflation fell back within the Monetary Policy Committee's target range of 4(+/-2)% after two months.

Core inflation showed signs of easing, falling to 6.02% in July, compared to 6.25% in June, according to data from Bloomberg.

Also read: Industrial Output Sees Modest Recovery In June

The July 2021 CPI inflation has receded below the MPC's upper 6% threshold, and also printed below expectations, which will help in quelling anxiety about the immediacy with which rates need to be hiked, said Aditi Nayar, chief economist at ICRA.

Despite the considerable moderation, with inflation expected to remain sticky in the 5-6% range over the next three quarters, it's increasingly difficult to characterise the pressures as purely transitory in nature.
Aditi Nayar, Chief Economist, ICRA

Sreejith Balasubramanian, economist at IDFC AMC said that it will be vital to track any sustainable recovery, apart from pent-up demand, which typically creates price pressures that are more sticky but responsive to monetary policy, unlike supply-driven inflation.

Still, 6.3% inflation in June should be the peak for a few months, given the base effects in play till November, he said.

Inflation Internals

Oils and fruits, pulses, fuel and light continued to record high but declining rates of inflation.

  • Inflation in oils and fats was at 32.5% compared to 34.8% last month.

  • Inflation in the pulses category was at 9.04% compared to 10.01% in June 2021.

  • Vegetables saw disinflation, with prices falling 7.75% over a year ago. Last month, prices had fallen 0.7% over the previous year.

  • Clothing and footwear inflation was at 6.46% compared to 6.2% in June.

  • Housing inflation stood at 3.86% in July compared to 3.75% in June.

  • Fuel and light inflation stood at 12.4% compared to 12.68% last month.

  • Inflation in transport and communication was at 10.54% compared to 11.56% in June.

Movers And Shakers

Inflation across food and beverages eased substantially in July 2021, led by vegetables, fruits, oils and fats, pulses, sugar and spices.

The supply-side measures taken by the government appear to have helped dampen the inflation for oils and fats as well as pulses, Nayar said.

Health inflation saw an uptick after showing signs of easing in June. Inflation in clothes, footwear and milk climbed for the third straight month. Inflation in eggs rose for the fourth straight month and saw the highest rate of inflation after oils and fats at 20.8%.

While the inflation for miscellaneous items has eased, it printed above our expectations, with a sharp 0.9% month-on-month rise that needs to be watched, Nayar said.

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