Business News/ Economy / August inflation: What CPI data tells us beyond the base effect, in charts
Gift this article
India's retail inflation remained largely steady at 3.65% in August, recording only a mild rise from the revised figure of 3.60% in July. This is the second consecutive month that inflation has come in below the Reserve Bank of India’s (RBI’s) medium-term target of 4.0%. However, the statistical effect of a favourable base was the primiary reason behind the low inflation figures in July and August.
India's retail inflation remained largely steady at 3.65% in August, recording only a mild rise from the revised figure of 3.60% in July. This is the second consecutive month that inflation has come in below the Reserve Bank of India’s (RBI’s) medium-term target of 4.0%. However, the statistical effect of a favourable base was the primiary reason behind the low inflation figures in July and August.
In comparison, inflation was 6.83% in August 2023 and 7.44% in July 2023. As such, economists have warned against reading too much into year-on-year inflation figures and instead focus on sequential momentum (the change in prices from the previous month) to gauge price pressures.
What could be a relief is that the food and beverages index declined 0.3% in August from July. This is the first time since January that there has been a sequential easing in this group. However, all other groups saw month-on-month increases, suggesting they are seeing mild price pressures.
Vegetable prices drive decline
Within food and beverages, the major source of the decline was vegetables, which fell by 2.5% month-on-month in August compared to an increase of 14.1% in July. However, the correction was not as big as economists had expected. “Although vegetables declined by 2.5% on a sequential basis in August 2024 after rising by 14% in each of the previous two months, the extent of the contraction was much smaller than our expectations," said Aditi Nayar, chief economist at ICRA.
Eggs, meat and fish was another major component that saw a sequential decline. However, a sharp rise in fruit prices and a continued increase in cereals and pulses prices in August remain a worry.
While some moderation in food prices may offer respite, its volatile nature has kept policymakers on their toes. Moreover, with the base effect fading from this month, inflation is expected to rise again. “We anticipate a sharp pickup in the CPI inflation to 4.8% in September, and between 4.4% and 4.7% in the second half of 2024-25," Nayar added.
Should inflation come in at 4.8% in September, the average for July-September will be 4.0%, lower than the RBI’s projection of 4.4% for the quarter. However, since full-year inflation is still expected to be above 4.0%, the RBI may not be too keen on easing monetary policy in a hurry.
State-wise, the trend was largely similar to the national average, with only a few states recording sharply higher inflation. Tripura and Bihar were the two states where inflation was the highest. It remained below 4.0% in all but nine states.
Catch all the Business News , Economy news , Breaking News Events andLatest News Updates on Live Mint. Download TheMint News App to get Daily Market Updates.
Get the latest financial, economic and market news, instantly.
{{^adFree}}
{{/adFree}}