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Inflation based on Consumer Price Index (CPI) cooled down to 5.3% in August, from 5.59% in July as food prices fell, according to data released by the government’s statistics agency. The retail inflation has remained within the central bank’s target band of two and six percent for the second month in a row. In the year-ago period, retail inflation stood at 6.69%.
However, prices of edible oil remained higher as the inflation rate for ‘oil and fat’ stood at 33%.
Consumer Food Price Inflation (CFPI) in August was 3.11%, compared with 3.96 percent in July. Aditi Nayar, Chief Economist of Icra said that the welcome decline in the CPI inflation in August 2021 was broad-based, led by all the components except clothing and footwear, and fuel and light. CFPI stood at 9.05% in August 2020.
Further, Icra said that core inflation which excludes food and fuel dropped to 5.5% in August from 5.7% in July
However, Aditi Nayar expects a policy normalization in February, next year as the stance of monetary policy changes to neutral from accommodative. She added that it will be followed by an increase in repo rate by 25 bps each in the April 2022 and June 2022 meetings.
Icra in its note said that the stance and policy rate is likely to be left unchanged until domestic demand strengthens and replaces supply-side constraints as the key driver of inflationary pressures. The GDP data in the second quarter of FY22 and emerging trends during the festive season will provide a clear signal about demand revival and guide the monetary policy committee’s decision in the Dec 2021 review.