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Retail Inflation Accelerates in August, Stays Above RBI's Upper Tolerance Level

Strategic Insights

— 2 min read

India's retail inflation, as measured by the consumer price index (CPI), rose to 7% in August, higher than the 6.7% in July and 5.30% in August 2021. Food inflation was the main driver of this increase, with prices of cereals, vegetables, milk, and milk products rising significantly. The acceleration in retail inflation is the eighth consecutive month it has remained above the Reserve Bank of India's (RBI) upper tolerance level of 6%. This may prompt the RBI to raise interest rates again, as economists expect. The finance ministry noted that despite erratic monsoon and negative seasonality in vegetable prices, food inflation in August is still lower than the April peak of the current year.

Key Takeaways:

  • Retail inflation in India accelerated to 7% in August, reversing a three-month downward trend and staying above the RBI's upper tolerance level of 6% for the eighth consecutive month.
  • Food inflation was the main driver of this increase, with prices of cereals, vegetables, milk, and milk products rising significantly, with a 9.6% increase in cereal and product prices and a 13.2% increase in vegetable prices.
  • Rural inflation was at 7.2%, higher than urban which was at 6.7%, while rural food inflation was at 7.6% and urban at 7.5%.
  • Industrial production growth slowed to a four-month low of 2.4% in July, largely driven by a contraction in mining and slowing activity in manufacturing and electricity.
  • The RBI has raised rates thrice to rein in inflation pressures, and economists expect it to raise interest rates again in the monetary policy review later this month.
  • The finance ministry noted that despite erratic monsoon and negative seasonality in vegetable prices, food inflation in August is still lower than the April peak of the current year.

Statistics:

  • Retail inflation in India accelerated to 7% in August, compared to 6.7% in July and 5.30% in August 2021.
  • Food inflation rose to 7.6% during the month from 6.7% in the previous month.
  • Cereal and product prices rose 9.6% in August, while vegetable prices shot up 13.2% during the month.
  • Fuel and light prices 10.8% and core inflation, which is minus food and fuel was at 5.9%.
  • Industrial production growth slowed to a four-month low of 2.4% in July, lower than the 11.5% growth recorded in July 2021.

Sources:

  • National Statistical Office (NSO)
  • Reserve Bank of India (RBI)
  • Finance Ministry
  • HDFC Bank

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