Mint Explainer: Why is retail inflation at a 15-month high?

livemint.com:

Mint explains why. The CPI inflation soared to a much sharper-than-expected 15-month high of 7.44% in July 2023 from 4.9% in June 2023, due to vegetables, as well as some other food items such as pulses, spices and cereals. Excluding vegetables, the increase in the CPI inflation print was relatively tolerable, to 5.4% in July 2023 from 5.2% in the previous month.

Barring food and beverages, the inflation in all other groups eased in July 2023 against June 2023, offering some relief. Moreover, the core CPI (CPI excluding food and beverages, fuel and light and petrol and diesel) eased to a 21-month low of 5.1% in July 2023. A Mint poll of 19 economists had estimated a six-month high retail inflation of 6.50% in July, sharply up from June’s 4.81%, on account of a surge in vegetable prices.

Respondents in the poll had made estimates in the range of 5.5-7.5%, with all but two expecting inflation to cross the upper limit of RBI’s 2-6% target band. The monsoon data for food prices for early August 2023 is not very promising. Economists expect the headline CPI inflation to stay above the 6.5% mark in August, before cooling off materially in September.

Meanwhile, the vegetable price shock may not reverse adequately before the next harvest. Moreover, rainfall has been deficient in August so far, which is likely to put upward pressure on food prices, amid the lags in kharif sowing across some crops. Earlier this month, RBI left the repo rate unchanged at 6.50% after terming the recent spike in vegetable prices to a demand-supply mismatch.