India’s retail inflation rate fell to 3.54% in July 2024, the lowest in the past 59 months, according to data released by the Ministry of Statistics and Programme Implementation. This marks the first time inflation has dipped below the Reserve Bank of India’s (RBI) target of 4% in nearly five years.
The corresponding inflation rates for rural and urban areas were 4.10% and 2.98%, respectively. The decline was supported by a favorable comparison, as consumer inflation had reached 7.4% in July 2023. In June 2024, the country’s retail inflation was recorded at 5.1%.
Food Inflation Eases to 5.42%
Inflation in the food basket was 5.42% in July, down from 9.36% in June. According to NSO data, food inflation in July is the lowest since June 2023. The year-on-year (YoY) inflation rate for rural and urban areas was 5.89% and 4.63%, respectively.
A significant decline was observed in the vegetables, fruits, and spices subgroup. During July, there was a decline in inflation for all the groups.
RBI Forecast and Stance
In its latest Monetary Policy Committee (MPC) meeting concluded on August 8, the RBI kept the policy rate on hold for the ninth consecutive time. The central bank updated its CPI inflation forecast for Q2 FY25 to 4.4%, up from the earlier estimate of 3.8%. For Q3 FY25, the forecast has been slightly adjusted to 4.7% from 4.6%, while the Q4 FY25 projection has been revised downward to 4.3% from 4.5%. The CPI inflation forecast for Q1 FY26 remains at 4.4%.
Governor Shaktikanta Das highlighted that while the MPC may overlook temporary spikes in food inflation, it cannot ignore persistently high food prices due to their potential spillover effects. He noted that the public largely perceives inflation through food costs.
Data Collection and Next Release
Price data are gathered from 1,114 urban markets and 1,181 villages across all states and Union Territories. In July 2024, the NSO successfully collected prices from 100% of the villages and 98.5% of the urban markets, with market-wise reporting rates of 88.71% for rural areas and 92.64% for urban areas.
The next release date for the August 2024 CPI is set for Thursday, September 12.
Industrial Production Growth Slows to 5-Month Low
On the other hand, the IIP growth rate came in at 4.2% for the month of June, a five-month low, according to government data.
The sharp decline in India’s retail inflation to 3.54% in July 2024, the lowest in nearly five years, is a positive development for the economy. The easing of food inflation and favorable base effect have contributed to this outcome. However, the RBI remains cautious about potential spillover effects of persistently high food prices and will closely monitor the situation. The central bank’s stance on policy rates will depend on the evolution of inflation and growth in the coming months.
