Retail inflation in August grew 3.36% on higher food prices

Retail inflation in August grew 3.36% on higher food prices

India’s retail inflation continued to grow at 3.36 percent in August, mainly due to an increase in foods prices and higher services costs indicating GST’s inflationary impact.

Retail inflation, measured by Consumer Price Index (CPI) grew 2.36 percent in July after falling for three successive months. It grew at 5.05 percent in August a year ago.

The inflation rate is still below the Reserve Bank of India’s medium-term target of 4 percent.

“With the repo rate at 6 percent and the CPI inflation expected to average 3.7 percent in 2017-18, there may be room for further monetary easing,” Aditi Nayar, Principal Economist at ratings agency ICRA said.

“Despite this and the subdued GDP growth print for Q1 FY18, there is a low likelihood of further rate cuts in 2017 in our view, given the uptick in inflationary expectations, hardening of core inflation, and the recent commentary by the Monetary Policy Committee,” Nayar said.

Consumer food price inflation, a metric to gauge changes in monthly kitchen costs, continued to remain soft, with prices showing gradual improvement at 1.52 percent from (-) 0.36 percent in July as compared with 5.91 percent in the same period last year.

The fall in food inflation was brought about by a disinflation in the prices of mainly pulses and vegetables including potatoes and onion. The current data released by the government, however, indicates a reversal in trend with food prices firming up.

Prices of all food items grew, barring eggs, spices, and pulses, which continued to remain tepid. Prices of pulses continued to decline 24.4 percent in August, as compared with (-)24.75 percent in July.

Vegetables prices grew 6.1 percent in August as compared with a decline of (-)3.57 percent in July.

Similarly, housing inflation grew 5.58 percent in August from 4.98 percent in July.

“The staggered impact on the housing index of the CPI, of the revision in HRA (house rent allowance) of central government employees, is likely to continue to push up housing inflation further over the coming year,” Nayar said.

Fuel inflation remained nearly flat, witnessing 4.94 percent growth in August, as compared with 4.84 percent in July.

According to Nayar, prices of petrol and diesel have recorded a rise in August, which has started to push up freight rates as well.