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Business News/ Economy / Independence Day 2023: What's been India's inflation trajectory in last one year? check key figures
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Independence Day 2023: What's been India's inflation trajectory in last one year? check key figures

Independence Day 2023: Government data released yesterday showed that the country's consumer price index (CPI) inflation surged sharply to a 15-month high peak of 7.44 per cent in July 2023, driven by high food and vegetable prices.

Vegetables being transported at Vegetable merchant Shivaji Demre's Vashi APMC shop. Demre supplies vegetables to Big Bazaar outlets Pic: KEDAR BHATPremium
Vegetables being transported at Vegetable merchant Shivaji Demre's Vashi APMC shop. Demre supplies vegetables to Big Bazaar outlets Pic: KEDAR BHAT

Independence Day 2023: Over the last one year, India's annual retail inflation has witnessed both upside and downside peaks over price fluctuations in the basket and due to global headwinds. Government data released yesterday showed that the country's consumer price index (CPI) inflation surged sharply to a 15-month high peak of 7.44 per cent in July 2023, driven by high food and vegetable prices.

July CPI print has breached the Reserve Bank of India's upper tolerance limit of 6 per cent for the first time in five months. The consumer food price index (CFPI) in July also surged to 11.51 per cent - the highest level since October 2020, according to data released by the Ministry of Statistics and Programme Implementation on August 14. 

Street estimates had predicted that July's CPI print will breach the central bank's 6 per cent limit in July, however a 7.44 per cent-record mark was completely unexpected. On a month-on-month level, retail inflation came in at 4.81 per cent in June after easing sharply to 4.25 per cent in May-which was a 25-month low. Broadly, India's inflation trajectory is expected to be benign this year, but highly vulnerable to changes in food prices, DSP Mutual Fund in its August edition of Netra report.

With almost half of the CPI basket comprising food items, any price changes in this category have a substantial effect on the overall inflation rate in India. So, even small fluctuations in food prices can have a significant impact on the cost of living for the average Indian consumer, according to DSP.

Some food items, especially essentials like vegetables, grains, and dairy, tend to have relatively inelastic demand. ‘’This means that changes in their prices lead to disproportionate changes in overall spending, as people cannot easily reduce consumption even if prices increase. As a result, food inflation can quickly affect household budgets and lead to decreased purchasing power,'' said DSP in its report.

In July 2023, prices of some of the most used vegetables in Indian kitchens, including tomatoes, onions, peas, brinjal, garlic and ginger, have more than doubled in the last few months. Food prices have soared largely due to the erratic monsoon throughout the country, pushing tomato prices at wholesale markets up more than 1,400 per cent in the past three months, according to news agency Reuters.
 

India's retail inflation in last one year

In March 2023, CPI inflation fell to a 15-month low of 5.66 per cent compared to 6.95 per cent reported in the year-ago period. In February, the inflation print came in at 6.44 per cent. Notably, retail inflation rose from 5.7 per cent in December 2022 to 6.4 per cent in February 2023 on the back of higher inflation in cereals, milk, and fruits and slower deflation in vegetable prices. 

Exactly a year ago, the CPI print had surged to 7 per cent in August 2022 due to higher food prices, compared to 6.71 per cent in July 2022. The figure then rose to a five-month high of 7.41 per cent in September 2022. 

Except for November and December 2022, the CPI print had remained above the RBI's upper tolerance level of 6 per cent since January 2022. However, the 7.44 per cent mark in July 2023 on the back of high vegetable prices, has been the highest since April 2022.
 

CPI inflation estimates for 2023

Earlier this month, the Reserve Bank of India (RBI) had upwardly revised the country’s retail inflation projections for 2023-24 at 5.4 per cent, while announcing the Monetary Policy Committee (MPC) meeting decision.

“Assuming a normal monsoon, retail inflation is revised to 5.4 per cent, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent. Retail inflation for Q1 2024-25 is projected at 5.2 per cent," RBI Governor Shaktikanta Das said.

He reiterated what he said after the June meeting – “Bringing headline inflation within the tolerance band is not enough; we need to remain firmly focused on aligning inflation to the target of 4.0 per cent."

Economists predict that the food price surge is likely to persist for the next few weeks, which will likely keep the CPI inflation elevated till the third quarter of current fiscal.

"There are no signs of any sequential moderation in food prices in August. Although it is still early in the month, we expect CPI inflation prints to remain elevated in the next couple of months, and then start easing in Q4 2023,'' said Rahul Bajoria, Chief India economist at Barclays.

While the RBI's rate-setting panel is tasked with keeping inflation within a 2 per cent to 6 per cent range, it is expected to try and anchor inflation close to the 4 per cent mid-point of that band. However, economists say that if the inflation stays elevated for the next two quarters, the central bank will likely hike rates in the near-term.

With the spike being significantly higher than expected, analysts are sceptical that inflation will return to its glide path anytime soon. The silver lining could be relatively range-bound core inflation, according to estimates.

‘’…Another 25-basis point rate hike by the RBI is a distinct possibility. At the same time, a rate cut in the next 12 months appears extremely unlikely. We anticipate that the increase in inflation will have a negative impact on both the bond and equity markets,'' said Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers.

 

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ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
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Published: 15 Aug 2023, 06:13 AM IST
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