Moderation in food prices may have helped bring retail inflation to a five-month low of 6.7 per cent in July, but concerns about the uneven progress of the monsoon through the country and other factors reversed the August inflation print. It is possible
Price growth in food items fell to the lowest level since March 2022 from 6.75% in July, from 7.75% in June, and served as the key driver for bringing down consumer price inflation below 7% after a gap of three months. was spotted. In recent weeks, the government has banned external and internal trade in foods such as rice. Flour (wheat flour), and Tur dal (red gram), shows recognition of their rising prices.
Food items account for a little over 45% in the Consumer Price Index (CPI) and the Office for National Statistics is scheduled to release the August CPI on Monday.
Retail inflation averaged 7.28% in the April-June quarter of 2022-23, and the RBI lowered its second quarter (Q2) inflation forecast in August to 7.1% from 7.4%. Nevertheless, a July print of 6.7% would mean that higher price increases can be expected in the months of August and September. CARE Ratings expects inflation in the second quarter to be “substantially” in line with the RBI’s estimate of 7.1%.
CARE Ratings Chief Economist Rajni Sinha said that despite moderation in overall food inflation in July, inflation in cereals such as wheat and rice had risen to 6.90% due to a steady rise in their prices due to limited supply.
The base effect from August 2021, when retail inflation was at 5.3% compared to 5.6% a month ago, could also lead to a marginal increase in the CPI reading. Another factor that could push up retail food prices is that August 18 is the first full month to levy GST on non-branded, pre-packaged food items.
Hitesh Suvarna, Analyst, JM Financial, said in a research note, “With the onset of the festive season, we believe that food inflation should pick up in August 2022 and we should see a drop in food prices due to floods and uneven monsoon. There also appears to be an increased risk.” Mandi prices had increased in the first half of August, he said.
While the government banned wheat exports in May, the heat wave caused disruption in wheat production, and low acreage of rice due to uneven rains could keep the supply situation tight, resulting in near-term. There could be high grain inflation in the period. , Ms. Sinha said. Moreover, volatility in the rupee and uneven monsoon distribution poses a threat to overall inflation, he asserted.
The Essential Commodities Act was enacted on August 12 to crack down on tur dal traders, who were doing “restricted sale” to drive up prices. After a fortnight, the export of Flour, flour (refined flour) and rava (Wheat Semolina) were banned, citing their sharp rise in global prices and the need to ensure overall food security in the country. Last week, 20% export duty was imposed on rice exports to pacify domestic prices, while paddy sowing continues due to uneven progress of monsoon in different parts of the country.
ICRA Chief Economist Aditi Nair cautioned that retail inflation figures for August and September could be “slightly” above the July level of 6.7 per cent due to base effects. Inflation in edible oils, vegetables and meat and fish had declined in July, with fruits, eggs and cereals recording substantial growth, he said.
Following the July retail inflation data, the finance ministry had said policy measures such as maintenance and calibrated release of buffer stocks in the case of rice, pulses, and onions and export restrictions in the case of wheat are expected to be capped. food inflation. “In the absence of any further shock”, softening global commodity prices is expected to ease inflationary pressures, it had said.