India’s retail inflation reached 7% in August, . is above 6.71% in JulyFueled by pick-up in 7.62% food prices Paid by consumers, even as industrial output growth in July fell to the lowest level since April at 2.4%, with production falling 2.75% month-on-month.
This is the eighth consecutive month that retail inflation has remained above the central bank’s upper tolerance limit of 6% inflation for the economy, and the spending power of households among poorer sections of the population has suffered a setback.
The combination of bouncing inflation and a tripping industrial recovery will make the central bank’s task tougher in a monetary policy review due later this month, where economists expect a new interest rate hike of 35 to 50 basis points. One basis point is equal to 0.01%.
Rural inflation, which stood at 6.8% in July, saw a sharper increase than urban inflation in August, rising to 7.15%. Inflation for urban consumers rose to 6.72% from 6.49% in July.
Production of consumer non-durables fell 2% in July, up from 2.96% in June. The use-based categories recorded the highest growth of 5.8% in capital goods production, but contracted sequentially in July to 6.7% from June levels.
Low industrial growth is probably a function of the base effect, as the Index of Industrial Production (IIP) increased by 11.5% in July 2021. Deloitte India economist Rumki Mazumdar linked the contraction in non-durables to stress in rural households, which has hit demand.
EY India Chief Policy Advisor DK Srivastava said the increased inflation also means that household budgets will be hit, especially the low-income segment, as food and related items form a major part of their consumption basket.
ICRA Chief Economist Aditi Nair said the rise in inflation was largely driven by ‘broad-based growth in the food segment’, with higher inflation in cereals, pulses, milk, fruits, vegetables and ready meals and snacks.
Inflation, as measured by the Consumer Food Price Index, rose to 7.6% in rural India and 7.55% in urban parts of the country from around 6.7% in July.
Cereal prices rose to 9.6 per cent in August from 6.9 per cent in July, while vegetable inflation, which had hit an all-time high of 10.9 per cent in July, reversed its trend to register a rise of 13.23% in August. Shri Srivastava said that domestic factors, especially the uneven monsoon and its adverse impact on food prices, have increased inflation.
Ms Nayyar said that with kharif crop sowing “increasingly impossible” to touch last year’s levels, food inflation could remain a problem even if healthy reservoir levels augurs well for rabi sowing , Ms Nair said.
A rebound in demand for services also picked up miscellaneous and housing inflation, and is likely to remain so, she said, with retail inflation expected to rise to 7.1% in September. RBI has forecast inflation for the July to September quarter at 7.1%.
Inflation in ten of the 22 major states registered over 7%, with West Bengal registering the highest price increase of 8.94% in August. Gujarat’s inflation rate also rose to 8.22% in August from 7.85% in July, while Telangana’s inflation rate declined to 8.11% in August from 8.58% in July.
Maharashtra recorded a higher inflation rate of 7.99% in August than in July, while Madhya Pradesh (7.83%), Assam (7.73%), Haryana (7.71%) and Uttar Pradesh recorded 7.62%, the highest price among some other states. increase was observed. month.
Manufacturing sector growth slowed to just 3.2 per cent in July, while electricity generation grew just 2.3 per cent, sharply decelerating from double-digit growth in June. Mining sector output declined by 3.3 per cent during July, compared to a year-on-year growth of 7.8% in June.
The intermediate goods segment was the only one to increase output levels in July 2021 as well as June 2022 – growing 3.6% and 1.6%, respectively. Production growth in the consumer durables sector, which had led industrial growth with a growth of 25.07% in June, reached 2.4% this July, with total production down about 3% from June 2022 levels.
CARE Ratings chief economist Rajni Sinha said while slow manufacturing growth and poor consumer goods performance are particularly worrying, there should be some improvement in consumption spending in the festive season. “However, downside risks arising from an increase in domestic inflation and a global growth slowdown remain.”
National Statistics Office, Which released inflation and IIP data on MondayLtd. also revised the IIP for April, showing a growth of 6.66% as compared to 7.1% estimated earlier.