Inflation data tomorrow: Vegetable prices to exert pressure on July's CPI print; Street estimates go above 6% limit

livemint.com:

6.40 per cent in July on surging food prices, breaching the upper end of the Reserve Bank of India's 2 per cent-6 per cent tolerance band for the first time in five months. Even though CPI inflation rose higher than Street estimates at 4.81 per cent in June, it was still below the central bank's upper tolerance band of 6 per cent for the fourth straight month. Broadly, India's inflation trajectory is expected to be benign, but highly vulnerable to changes in food prices, DSP Mutual Fund in its August edition of Netra report.

With almost half of the CPI basket comprising food items, any price changes in this category have a substantial effect on the overall inflation rate in India. So, even small fluctuations in food prices can have a significant impact on the cost of living for the average Indian consumer, according to DSP. Some food items, especially essentials like vegetables, grains, and dairy, tend to have relatively inelastic demand.

‘’This means that changes in their prices lead to disproportionate changes in overall spending, as people cannot easily reduce consumption even if prices increase. As a result, food inflation can quickly affect household budgets and lead to decreased purchasing power,'' said DSP in its report. Food prices, which account for nearly half of the inflation basket, have soared in the last two months largely due to the erratic monsoon throughout the country, pushing tomato prices at wholesale markets up more than 1,400 per cent in the past three months, according to Reuters.