Retail inflation declines to 6.83% in August on falling food prices; July IIP at 5.7%

• Food inflation lowered to 9.94% in August as compared to 11.51% in July.
• Softer vegetable prices, slide in prices of meat and egg products and fish aided the food inflation print.
• Prices of cereals, milk, fruits and spices rose significantly in August as compared to July.
• India’s factory output or IIP increased by 5.7% in July, according to the official data.
  

Retail inflation declined to 6.83% in August compared to 7.44% July, mostly due to easing vegetable prices. This year’s August print also came in lower than 7% seen in the same month last year.

Core inflation stood at 4.9% for the month, eased marginally from the month before, and it’s the third consecutive month of a dip in inflation of this metric. Food inflation lowered to 9.94% in August as compared to 11.51% in July. Apart from softer vegetable prices, slide in prices of meat and egg products and fish also aided lower food inflation print.

'A modicum of relief'

Economists call this easing a ‘modicum of relief’. “The consumer price inflation (CPI) inflation eased below the 7% mark in August 2023 to a lower-than-expected 6.8%, largely led by vegetables, amidst some moderation in the prints for clothing and footwear, housing and miscellaneous items as well,” said Aditi Nayar, chief economist at rating agency ICRA.

The prices of cereals, milk and fruits as well as clothing and footwear and spices rose significantly in August as compared to July. Cereals and pulses inflation are seeing an uptick and this trend could be more sticky, says Suvodeep Rakshit, senior economist at Kotak Institutional Equities.

The numbers are in line with the expectations of most economists, they also flagged off concerns of other factors that might keep inflation higher in the coming months.

“The recent measure to lower LPG prices will have a 0.2-0.25% impact on inflation in September. While inflation for September will move towards the 6% mark and probably go lower, this will not be very comforting yet for monetary policy,” said Madan Sabnavis, chief economist at Bank of Baroda.

Even if the CPI inflation print is in the range of 5.3-5.5% in September 2023, it will average to a 6.6% for the second quarter of FY24 – that’s well above RBI’s forecast in August. The Reserve Bank of India (RBI) has projected the CPI inflation at 5.4% for 2023-24.

“We expect the MPC to remain on hold in October 2023, while continuing to demonstrate caution amid a cloudy outlook for food inflation and elevated crude oil prices,” said Nayar.

IIP hits a 5-month high

India's industrial production (IIP) increased by 5.7% in July to hit a five month high, as per data released on Tuesday. Factory output measured in terms of IIP grew by 2.2% in July 2022.

The data released by the National Statistical Office (NSO) showed that the manufacturing sector's output increased by 4.6% in July 2023. Mining output rose 10.7% during the month under review. Power output grew 8%.

The IIP grew by 4.8% in April-July 2023 compared to 10% in the same period of 2022.

The industrial growth number is however comforting for RBI in terms of giving reassurance on the growth front even as nine of the manufacturing industries have witnessed negative growth,” said Sabnavis.

He opines that the months of September, October and November will hold clues to the sustenance of growth in industry and will be dependent on consumer goods reviving.

(With PTI and IANS inputs)