NEW DELHI: India's retail inflation based on consumer price index (CPI) snapped a 3-month downward trend in August and surged to 7%, data released by government showed on Monday. The jump has mainly been on account of surge in food prices.
In July, CPI numbers stood at 6.71%. It was the 3rd month in a row when retail inflation numbers had cooled from its 8-year high of 7.79% in April.
Retail inflation is ruling above the Reserve Bank's comfort level of 6% since January. This is the 8th month in a row when inflation figures remained above central bank's tolerance band of 2-6%.
The Reserve Bank of India (RBI), has been tasked by the government to keep inflation within 2-4% range, with a margin of 2 per cent on each side. Even RBI's own projections showed inflation staying above the 6% top end of its target range until early 2023.
What led to the surge
Food inflation, which accounts for nearly half the consumer price index (CPI) basket, soared as prices of essential crops like wheat, rice and pulses were driven higher.
Inflation in food basket was 7.62% in August, up from 6.69% in July and 3.11% in August 2021.
The government has imposed curbs on exports of wheat, sugar, and rice to cool local prices as it is worried over the shortfall in rainfall in some parts of the country could drive up food prices.
However, despite such restrictions on exports, retail inflation surged yet again after cooling off marginally for last 3 months.
"Inflation levels in the economy remain elevated despite a considerable reduction in crude oil price from its recent highs. Rise in food prices, domestic fuel price level and pressure on the currency continue to pose near-term threat to the inflation trajectory," Vivek Rathi, director-research at Knight Frank India told Reuters.
"These will also guide the upcoming monetary policy action, which has so far already witnessed three policy rate hikes and liquidity tightening measures over the last five months," he added.
Where do other commodities stand
The rate of price rise was in excess of 10% in case of vegetables, spices, footwear, and 'fuel and light' on annual basis.
Prices of vegetables and spices also jumped 13.23% and 14.9%, respectively. Cereals and products saw an uptick of nearly 10%, while clothing and footwear costs also accelerated in the given period.
However, there was contraction in inflation in egg and almost flat in protein rich 'meat and fish' during the month.
Another rate hike
Earlier this month, RBI governor Shaktikanta Das said that retail inflation had peaked and was expected to moderate to around 5% by the April-June quarter of the next year, citing a fall in international crude oil and other commodity prices.
The central bank has hiked benchmark lending rates by 140 basis points since May this year to curb soaring inflation.
With inflation soaring to 7% yet again, the central bank is almost certain to hike benchmark lending rates yet again in its next policy meeting. Though, the percentage of hike it opts for needs to be seen.
The MPC will hold its next monetary policy meeting on September 30, and is widely expected to raise the repo rate by 25-50 basis points, economists quoted by Reuters said.
'Inflation management can't be singularly left to RBI'
Last week, finance minister Nirmala Sitharaman had said inflation management cannot be "singularly" left to the monetary policy as a majority of activities are outside its purview in the current context.
Speaking at a seminar organised by economic think-tank Icrier, the finance minister said that both the fiscal policy and the monetary policy have to work together to contain inflation.
"The RBI will have to synchronise somewhat, maybe not as much synchronised as other western developed countries would do. I am not prescribing anything to the Reserve Bank...
"I am not giving any forward direction to the RBI but it is the truth that India's solution to handling the economy, part of which is handling inflation also is an exercise where the fiscal policy, together with the monetary policy has to work," she said.
The minister further said there are economies where policy is designed in such a way that the monetary policy and the interest rate management is the one and the only tool to handle inflation, she said.
(With inputs from agencies)
