Inflation cools down to 5.59% in July

Retail inflation measured by Consumer Price Index declined to 5.59% in July as food prices fell, according to data shown by National Statistics Office. The CPI was 6.26% in Jun 2021 and 6.73% in July 2020.

The food inflation fell substantially to 3.96% in July 2021, from 5.15% in June 2021 and 9.27% in July 2020. Under Food category, Egg, oil and fats and non-alcoholic beverages had the double-digit inflation rate at 20.82%, 32.53% and 14.44% in July.

RBI in consultation with the India’s central government had set the inflation target anywhere between 2% and 6% and July’s data indicates RBI is unlikely to increase the interest rate.

The central bank, recently, in its monetary policy review meeting kept the interest rate unchanged at 4% and had an accommodative stance, but increased the overall inflation estimates for FY22 to 5.7% from 5.1%. The central bank’s inflation projections are 5.9% for Q2FY22, 5.3% for Q3FY22 and 5.8% for Q4FY22.

According to rating agency ICRA, the CPI inflation is expected to remain sticky in the range of 5-6% during Q2-Q4 FY2022. A small disruption could push inflation back above the 6% threshold, implying that some uneasiness will continue about how soon the MPC may embark on policy normalisation.

ICRA added that they foresee a change in the stance to neutral from accommodative in the February 2022 Policy review, followed by a hike in the repo rate of 25 bps each in the April 2022 and June 2022 meetings.

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