The good, the bad, and the not-so-bad of August inflation
CPI inflation fell below 7% in August, and at 6.83%, it printed well below the market’s expectations led by deflation in the prices of vegetables, particularly, tomatoes.
The bad news is that inflationary pressures shifted from perishable items to others in the food basket like cereals, spices, and pulses, which could prove to be sticky in coming months, much to the concern of the authorities, particularly the Reserve Bank of India.
And the no-so-bad news about the August inflation is that it might not trigger any move from the Monetary Policy Committee of the RBI & could keep the repo rate steady at 6.5% for the remainder of this financial year.
Inflation Internals
While August CPI inflation was below market expectation of 7%, it remained well above the MPC’s target range of 2-6%.
Vegetable prices fell by 6% month-on-month in August as opposed to a 38% rise between June and July. This led to inflation falling to 6.8% from 7.4% in July.
Tomato prices, which rose 214.3% in July, declined 21.7% in August. Prices of meat and eggs fell 1.7% and 3.0%, respectively in August.
The overall index declined sequentially for the first time in eight months in August.
The overall index was down 0.1% on month in August.
Core inflation, which is inflation excluding volatile food and fuel, fell to 4.8% in August from 4.9% a month ago. This is the lowest level for core inflation in over three years.
In other words, core inflation is the lowest since the pandemic. Core services inflation has remained moderate at 4.5% in August, despite the evidence of strong service sector activities.
Pressure in cereals, sugar, pulses and spices, kept food inflation at 9.9% year on year in July, versus 11.5% in July.
