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Inflation Eases to 6.8% in August, Industrial Growth Hits 5-Month High

Strategic Insights

— 1 min read

Following a significant decline in vegetable prices, particularly tomatoes, India's retail inflation fell to 6.8% in August, lower than the expected 7% increase. Experts speculate that consumer prices will continue to decline in September, with the Reserve Bank of India's upper target band of 6% looking achievable. Meanwhile, industrial growth rose to a five-month high of 5.7% in July, driven by the three major sectors - manufacturing, electricity, and mining - all recording faster growth in activity.

Key Takeaways:

  • Retail inflation fell to 6.8% in August from 7.4% in the previous month, with a decline of 1.6 percentage points.
  • The easing of vegetable prices, particularly tomatoes, contributed significantly to the decline in retail inflation, with the index declining by 21.1% sequentially.
  • Industrial growth rose to a five-month high of 5.7% in July, with manufacturing, electricity, and mining all recording faster growth in activity.
  • Consumer durables, an indicator of urban demand, remained in contraction for the second consecutive month, while non-durables, a proxy for rural demand, rose faster at 7.4% compared with 1.2% in June.
  • The Reserve Bank of India's upper target band of 6% for inflation is expected to be achievable, with experts noting that the LPG price cut will also likely have a 20-30 bps impact on September inflation.
  • Risks remain, including uneven monsoon, fuel inflation, and the potential spill-over of high food prices to other components of inflation.
  • Industrial growth is expected to provide some succour on the growth front, with all three major sectors recording a faster rise in activity.

Statistics:

  • Retail inflation in August, 6.8%
  • Sequential decline in CPI inflation, 26.1% (vegetables)
  • Industrial growth in July, 5.7%
  • Manufacturing growth in July, 4.6%
  • Electricity growth in July, 8%
  • Mining growth in July, 10.7%
  • Cereal prices in August, 11.9%
  • Pulse prices in August, 13.0%
  • Core inflation (CPI excluding food and beverages, fuel and light and petrol and diesel) in August, 5.06%

Sources:

  • "Retrieved from Times of India, n.d."
  • "Aditi Nayar, Chief Economist, Icra, quoted in the article."
  • "Gaura Sengupta, Economist, IDFC First Bank, quoted in the article."
  • "Dharmakirti Joshi, Chief Economist, Crisil, quoted in the article."
  • "Madan Sabnavis, Chief Economist, Bank of Baroda, quoted in the article."

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