Although August saw a decrease in inflation due to a cooling in vegetable prices, it is still higher than the RBI's target.
India's inflation rate likely declined in August after reaching a 15-month high in July as a result of dropping vegetable prices, according to a Reuters poll, but it still increased over the Reserve Bank of India's target range of 2% to 6%.
Read more :Prices of pulses skyrocketed as a result of insufficient rain
The government has temporarily relieved households by subsidising vegetable prices and banning the export of some grains as a result of erratic monsoon rains that have destroyed several crops of staple food items.
Given that food costs make up about half of the total inflation basket, which was enough to reduce headline inflation. Rising energy costs, however, are probably going to stop the decline.
CPI Increased comparatively to last year
The consumer price index was expected to have increased 7.00% in August compared to a year ago, down from 7.44% in July, according to a 45-economist Reuter’s poll conducted from September 4–7.
The predictions varied from 6.50% to 7.65%, with nearly two-thirds of respondents anticipating inflation to be at least 7.00%.
According to Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, "the worst is over in terms of the recent spike in vegetables, primarily tomato prices," and "much of the headline slowdown we expect to see in the upcoming CPI report will result from a sudden drop in food inflation back down to single-digit territory.
Unusual monsoon conditions could raise inflation
The irregular monsoon season, according to Chanco, means that inflation risks will stay pushed to the upside in the coming months.
While it was anticipated that inflation in the third-largest economy in Asia will continue to exceed the RBI's upper limit of the target range at least until October, it was also anticipated that it would continue to exceed the central bank's medium-term target of 4% long until 2025.
The RBI was not anticipated to increase its key policy rate anytime soon; instead, it was projected to begin decreasing it in Q2 2024.
They should feel somewhat secure in their decision to refrain from (making) any repo hikes given the systemic decrease in food inflation, which will be evident in the October statistics. Debopam Chaudhuri, head economist at Piramal Enterprises, predicted that they will maintain the pause during the October meeting.
The survey also revealed that, following a decrease of 1.36% the month prior, wholesale price inflation, or the change in producer prices, was probably -0.60% year over year in August.
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