New Delhi:

The central government’s timely interventions and stability measures by the Reserve Bank of India (RBI) helped maintain retail inflation at 5.4% despite the pandemic and geopolitical tensions, according to the Economic Survey 2024.

Headline inflation, which the RBI expects at 4.5% in FY25 and 4.1% the following year, is “under control”, said Finance Minister Nirmala Sitharaman. The inflation rate of some food items, however, is elevated, the government admitted.

Economic Survey 2024, which gives an insight into the current state of the economy, was tabled by the Finance Minister in the Parliament this morning, a day before presenting her seventh Budget.

The survey said supply disruptions caused by the COVID-19 pandemic and global conflicts led to an increase in the prices of consumer products and services in FY22 and FY23. However, timely policy interventions by the government helped maintain the retail inflation at 5.4% in FY24, it added.

This is the lowest the retail inflation has eased since the pandemic.

The survey also attributed the low retail inflation rate to price cuts for LPG and fuel by the government. The government reduced LPG prices by Rs 200 across India last August and cut petrol and diesel prices by Rs 2 this March.

The RBI raised policy rates by a cumulative 250 bps between May 2022 and February 2023, managed liquidity levels efficiently, and maintained consistent and coherent communication with market participants, the effect of which was reflected in the latest inflation data, the survey said. The retail inflation for last month was at 5.1%.

The core inflation has declined to a 4-year low, the survey added.

Food inflation, which stood at 6.6% in FY23, increased to 7.5% in FY24. The survey attributed the rising food prices to adverse weather conditions, depleted reservoirs, and crop damage, which impacted farm output and food prices.

Tomato prices spiked due to region-specific crop disease, early monsoon rains, and logistical disruptions, it said.

The survey also said that the Indian economy has recovered and expanded in an orderly fashion post pandemic. The economy is expected to grow between 6.5% and 7% this financial year, the government said.

A fruit vendor tends to customers at a fruit and vegetable wholesale market in Mumbai, India, February 8, 2023.
| Photo Credit: Reuters

Retail inflation increased to 5.08% in June as kitchen items became dearer, according to government data released on July 12.

The Consumer Price Index (CPI) based retail inflation was 4.8% in May 2024 and 4.87% in June 2023 (previous low).

Inflation in the food basket was 9.36% in June, up from 8.69% in May, according to the data released by the National Statistical Office (NSO).

The government has tasked the Reserve Bank of India (RBI) to ensure that the CPI inflation remains at 4% with a margin of 2% on either side.

The RBI projected the CPI inflation for 2024-25 at 4.5%, with Q1 at 4.9%, Q2 at 3.8%, Q3 at 4.6%, and Q4 at 4.5%.

The central bank mainly factors in the retail inflation while deciding its bi-monthly monetary policy.

(with inputs from PTI)

Headline inflation has slowed in India mainly because of lower food prices, but the volatility of these prices remains an issue, Moody’s Ratings said.
| Photo Credit: PTI

Volatile and high food prices remain a concern, but base effects may help temper India’s retail inflation pace in June and possibly even cool it below 4% over July and August, rating agencies and economists reckon.

Retail price rise had touched a 12-month low of 4.75% in May, even though food inflation stayed stuck at 8.7% for a second straight month. The National Statistical Office will likely release the Consumer Price Index data for June on Friday.

Headline inflation has slowed in India mainly because of lower food prices, but the volatility of these prices remains an issue, Moody’s Ratings said in a report this week. The agency also flagged stronger wage gains of more than 5% year-on-year.

The prolonged heatwave and the delayed start to the southwest monsoon was likely to have pushed June’s inflation to 5%, said Radhika Rao, executive director and senior economist at DBS Bank. Vegetable prices began to rise sharply as the month progressed, while telecom tariffs were also raised, she pointed out. 

With the monsoon regaining ground this month, vegetable prices were expected to moderate, and base effects would also push July-August inflation to sub-4%, she estimated. Ms. Rao, however, expects no interest rate cuts this year in light of the RBI’s signal that they would look through base effect-driven swings in readings and focus on sticky food pressures. 

In June 2023, retail inflation stood at 4.9%, before it surged to 7.4% and 6.8% in July and August, respectively.

India Ratings and Research expects retail inflation to have moderated to a 13-month low of 4.5% in June, due to a combination of the favourable base effect and a moderation in inflation of key items. But wholesale prices are projected to quicken at a 3.5% pace, from May’s 15-month high of 2.6% due to an unfavourable base.

“Prices of food items such as onion and potato continues to be high, despite softening of inflation in items such as tomato, pulses, milk and sugar,” the agency noted. Tomato inflation was at a six-month low of 29% as per Department of Consumer Affairs data for last month, it added.

Food inflation surged to a four-month high of 8.7% in April from 8.52% in March. Representational file image.
| Photo Credit: Reuters

Consumers faced a further acceleration in steep food prices in April, even as India’s overall retail inflation remained virtually unchanged at 4.83% last month, compared with 4.85% in March.

Food inflation surged to a four-month high of 8.7% in April from 8.52% in March, with rural consumers witnessing a sharper uptick of 8.75% in food prices. The gap between urban and rural consumers’ inflation experience remained sharp for the second successive month with rural households seeing a 5.43% rise in prices, while the overall inflation rate faced by urban consumers remained virtually unchanged from 4.14% in March to 4.11% in April.

On a month-on-month basis, price levels rose about 0.5%, with urban consumers facing a sharper uptick in overall prices as well as food items. Food prices rose 1.03% from March levels in urban India, while the rise was more subdued for their rural counterparts at 0.59%. The Consumer Price Index (CPI) was up 0.6% over March for urban households, while it was 0.37% higher for rural India.

The Reserve Bank of India (RBI) expects retail inflation to ease to an average of 4.5% this year from the 5.4% clocked in 2023-24, with the ongoing April to June quarter expected to see an average inflation of 4.9%. With April reporting a marginally lower inflation rate than the RBI’s projected average for the quarter, there could see some hardening in prices over this month and June.

The government has tasked the Reserve Bank to ensure inflation remains at 4%, with a margin of 2% on either side.

Ease in inflation helped by sharp drop in fuel and light prices

Within the food basket, vegetables’ inflation cooled marginally from 28.3% in March to 27.8%, staying in double digits for the fifth consecutive month. Pulses also reported double-digit inflation for the 11th straight month, at 16.84% in April, marginally lower than the 17.7% uptick in March.

However, inflation in cereals rose to 8.63% from 8.4% in March, while meat and fish prices hardened by 8.2% compared with 6.4% a month earlier. Fruits also reported higher price rise at 5.22%, from 3.1% in March. Egg prices were up 7.1%, lower than the 10.33% rise recorded in March.

Sugar and spices provided some succour to households’ food budgets, with the pace of price rise in the former easing below 6% in April from 7.2% in March, and spices inflation easing to 7.75% after a 22-month streak of over 10% inflation. Milk inflation also moderated to just under 3% from 3.4% in March.

The fractional easing in the headline inflation rate in April, despite the uptick in food price rise, was facilitated by a sharper drop in fuel and light prices, which were down 4.2% compared with a 3.2% decline in March, and aided by mildly lower inflation in some other items. These include clothing and footwear, pan, tobacco and intoxicants, housing, health, recreation and amusement.

The inflation in education as well as the transport and communication segments eased by about 0.5 percentage points each to 4.2% and 1.1%, respectively. However, prices for personal care and effects surged 7.5% in April, hardening from just over 6% in March. On a sequential basis, these items’ prices rose 3%.

Benign base effects from last year and this month’s above-normal temperatures and heatwave conditions could exacerbate food and beverages inflation further, which might push up the headline consumer inflation rate to a five-month high of 5.1%-5.2% in May, reckoned Aditi Nayar, chief economist at rating firm ICRA.

Among the major States, Odisha (7.05%), Assam (6.08%) and Haryana (6.06%), reported the highest inflation in April, while nine other States experienced a price rise of over 5%, including Bihar, Uttar Pradesh, Telangana, Madhya Pradesh, Karnataka and Rajasthan. In all, inflation was higher than the national average in 14 of 22 major States for which the National Statistical Office calculates inflation rates, including Gujarat (4.94%) and Kerala (4.84%).

On the other hand, consumers faced the lowest price rise in Delhi (2.29%), followed by Uttarakhand (3.58%), Maharashtra (3.66%), and West Bengal (3.68%).

A similar easing was recorded in pulses, whose prices rose 17.7% in March, 2024, from 18.5% in February.
| Photo Credit: Sushil Kumar Verma

India’s retail inflation moderated to a ten-month low of 4.85% in March from 5.1% in February, but food inflation remained sticky at 8.52%, little changed from the 8.66% recorded in the previous month as price rise accelerated in cereals and meat, while vegetables, pulses, spices and eggs remained in double-digit inflation.

While inflation for urban consumers cooled significantly from 4.8% in February to 4.14% in March, rural consumers had it harder as they experienced a slightly higher inflation of 5.45% in March compared with 5.34% in the previous month.

This trend was visible in the extent of food price rise as well, as it accelerated from 8.3% in February to 8.6% in March for rural India, while the food inflation for urban consumers dropped from 9.2% in February to 8.35% last month.

On a month-on-month basis, there was no change in the Consumer Price Index but the food price index inched up about 0.2% and economists reckoned that the ongoing heat wave could spike food inflation in coming months. Even as crude oil prices are firming up and an inflation spike in the US may delay hopes of interest rate cuts from the Federal Reserve, sticky food inflation at home could further dampen prospects of rate cuts from India’s central bank.

While March’s inflation rate is still aloof from the bank’s stated 4% target, average retail price rise in the last quarter of 2023-24 has been 5.01%, in line with the 5% average projected by the Reserve Bank of India (RBI).

The RBI, which last week called Inflation the elephant in the room that needs to return to the forest for good, expects retail inflation to ease to an average 4.5% this year from the 5.4% clocked in 2023-24. The ongoing April to June quarter is, however, expected to see an average inflation of 4.9%, as per the RBI.

Within the food basket, vegetables’ inflation cooled marginally from the seven-month high of 30.25% in February to 28.3% last month. A similar easing was recorded in pulses, whose prices rose 17.7% in March from 18.5% in February, eggs (up 10.33% from 10.7%), sugar (up 7.25% compared with 7.5% in February.

Also read | What causes inflation in India: Demand or supply issues? | Data 

However, the price rise in cereals spiked to 8.4% in March from 7.6% in the previous month, and rose to 6.4% for meat and fish, from 5.2% a month earlier. Spices inflation remained over double digits at 11.4%, moderating from 13.5% in February.

Food prices continue to be under pressure with cereals, vegetables, spices and pulses seeing high inflation and the present heat wave poses an upside risk,” said Bank of Baroda economist Madan Sabnavis, who added that recent price hikes by fast moving consumer goods firms is another monitorable.

Although inflation in household goods and services, as well as health and education, eased slightly from February levels, personal care and effects prices surged at a faster pace of over 6% in March from 5.2% the previous month.

“While core inflation continues to moderate, we remain wary of the heatwaves going ahead which could keep food inflation elevated and volatile in the summer months,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. Ms. Bhardwaj expects any possible interest rate cuts only in the latter half of this fiscal year, depending on monsoons’ performance, the trajectory of crude oil prices and the timing of the US Fed’s rate easing cycle.

Rating agency ICRA expects food and beverages inflation, which was 7.8% in March, to persist over 7% in April as well. “An intensification of the impending heatwave may worsen the seasonal uptick in prices of perishables, heightening the criticality of a favourable monsoon this year to keep food inflation in check and anchor inflationary expectations,” its chief economist Aditi Nayar stressed.

Photo used for representation purpose only.
| Photo Credit: Reuters

India’s economy is expected to remain robust over the next two years even though headline growth in the country’s Gross Domestic Product (GDP) is forecast to slow from 7.6% in 2023-24 to 7% this year before improving to 7.2% in 2025-26, the Asian Development Bank (ADB) said.

In its Asia Development Outlook report released on April 11, the Bank said it expects retail inflation to ease to 4.6% this year and 4.5% in 2025-26. India’s ‘persistent’ food inflation is expected to drop to 5.7% as farm output returns to trend this year.

A projected normal monsoon this year will also help revive rural consumption. Rural consumption was muted last year due to erratic rainfall affecting the farm sector, with greater demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act signalling the resultant stress.

“In India, growth is forecast to remain strong as rising consumption complements continued investment growth,” said Abdul Abiad, director of ADB’s macroeconomics research division. As India accounts for 80% of South Asia’s GDP, it is still the fastest-growing sub-region with improving domestic demand as prices moderate in most economies, he noted. South Asia is expected to grow 6.3% this year and 6.6% in 2025.

Higher incomes will spur consumer demand and confidence levels in urban consumers has improved, so demand is expected to rise from those areas with falling inflation and a gradual improvement in cities’ labour markets, the ADB reckoned. However, a rise in imports to meet domestic demand could widen the Current Account Deficit moderately to 1.7% of GDP this year and next year, it said.

India’s growth, the report said, will be driven by public and private sector investment demand and by gradual improvement in consumer demand as the rural economy improves. While exports are likely to be relatively muted this year as growth in major advanced economies slows down, they will improve in 2025-26.

“Foreign direct investment inflow will likely remain muted in the near term due to tight global financial conditions but will pick up in 2025-26 with higher industry and infrastructure investment,” the report averred.

India’s growth, the report said, will be driven by public and private sector investment demand and by gradual improvement in consumer demand as the rural economy improves. While exports are likely to be relatively muted this year as growth in major advanced economies slows down, they will improve in 2025-26.

Stressing that India’s economic outlook depends on price and financial market stability that are crucial for consumer and business confidence, the ADB said its projections face a downside risk from global shocks such as a spike in crude oil and energy prices leading to higher global inflation and tighter financial conditions.

“On the domestic side, there is a risk of underperformance in agriculture due to weather shocks that can affect demand and inflation,” it noted.

Among upside risks to its forecast, the Bank said, was faster-than-expected FDI inflow, particularly into manufacturing, which would improve output as well as productivity. “Better-than-expected global growth could boost exports and thus growth,” the ADB added.

New Delhi:

Retail inflation declined to a three-month low of 5.02 in September, mainly due to easing food prices, according to the government data released today.

The inflation has come back to the Reserve Bank’s comfort level of below 6 per cent after a gap of two months.

The inflation based on the consumer price index (CPI) was 6.83 per cent in August and 7.41 per cent in September 2022.

The previous low was in June this year when the reading stood at 4.87 per cent.

According to the data released by the National Statistical Office (NSO), the inflation in the food basket came down to 6.56 per cent in September from 9.94 per cent in the preceding month.

The Reserve Bank mainly factors in retail inflation while arriving at its bi-monthly monetary policy.
 

Oil pump jack is seen in front of displayed Israeli flag in this illustration taken, October 8, 2023.
| Photo Credit: Reuters

A protracted Israel-Hamas conflict could spur oil prices beyond India’s comfort zone and even if the government holds retail fuel prices ahead of critical elections, wholesale prices may spike and a higher import bill could pressure the rupee, according to experts.

Brent crude oil prices rose over 3% on Monday, crossing $87 a barrel even as equity markets around the world, including India, came under pressure as investors turned risk-averse and rushed to safe haven assets like gold.

Fears of a wider conflict between Israel and Hamas not only pulled down the NSE Nifty 0.72% or 141.2 points to 19,512.4, but also dragged trading volumes on the NSE to “the lowest in many weeks”, said Deepak Jasani, head of retail research at HDFC Securities.

Broad market indices fell more than the Nifty even as the advance-decline ratio fell sharply to 0.28:1, he added, stressing that the conflict is the latest negative trigger for markets that are already fretting about macroeconomic uncertainties in Europe and China, hawkish central banks and rising oil prices.

Also read: Israel-Palestine conflict LIVE updates on October 9

Beyond the short-term effect on markets, Bank of Baroda chief economist Madan Sabnavis said that if the war persists for even a fortnight or more, the oil dynamics will change. Crude oil prices going beyond $90 a barrel would pose trouble for the world economy as well as India.

“Iran joining the fray can affect the sea routes and push up transport and insurance costs. Higher crude prices will distort our balance of trade and current account deficit, thus putting pressure on the rupee,” Mr. Sabnavis noted.

For the government, there could be fiscal implications. With elections looming in several States and for the Lok Sabha in 2024, raising fuel prices may be an unlikely option, but higher costs will have to be absorbed either by oil marketing firms or the exchequer.

“Retail inflation can still be controlled by the government if it chooses to keep fuel prices unchanged. But wholesale price inflation will increase for sure. Some airlines have already increased fares after ATF price hikes, which is also inflationary,” the economist said.

Export earnings could also be hit as Israel buys around $5.5-6 billion of refined petroleum products a year from India.

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Food inflation stood at around 10% in August.
| Photo Credit: SUSHIL KUMAR VERMA

India’s retail inflation is likely to have retreated below 6% in September after two months over the central bank’s tolerance threshold, thanks to cooling prices for most essential commodities and food items, barring pulses that are seeing a sustained uptick in market prices.

Bank of Baroda economists, who put out a monthly index on essential commodities’ prices, expect consumer price rise last month to have dropped to 5.7% from 6.8% in August and a 15-month high of 7.4% in July. Food inflation stood at around 10% in August.

The National Statistical Office will release the Consumer Price Index (CPI) numbers for September this Thursday. Last Friday, the Monetary Policy Committee of the Reserve Bank of India (RBI) revised its average inflation projections for the July to September quarter from 6.2% to 6.4%. The upgraded estimate implies that the RBI expects September’s retail inflation print to be between 4.9% and 5%.

“Broadly, price pressures assuaged in September, with the reversal of tomato, potato and onion prices being the primary driver. More importantly, the moderation in food prices is broad-based,” said Dipanwita Mazumdar, economist at Bank of Baroda (BoB), noting that the base effects from last September when inflation stood at 7.4% will also alleviate the headline inflation number to an extent.

Pulses play spoilsport

“The only spoilsport continue to be pulses,” she added, with prices of all varieties of dals clocking sharp sequential upticks in September. The bank reckoned that inflation in tur dal year-on-year, hardened to 31.5% last month from 27.3% in August, while moong dal prices rose 10.7% (from 9.2% in August) — their highest rates in 2023.

Rice prices remained sticky, rising 11.1% in September compared to 11% in August, while onion inflation is expected to have sped to 29.5% from 17.6% in the previous month.

The rise in the BoB Essential Commodity Index moderated to 2.9% in September from 6.3% in August, with 35% of the commodities seeing softening price momentum. On a month-on-month basis, the index was down 1.8% from a 0.7% uptick in August, with retail prices of 12 of 20 essential commodities dropping

In a report on food plate costs last week, Crisil Market Intelligence and Analytics estimated a 17% dip in the cost of vegetarian food in September from August levels, while non-vegetarian plates became 9% cheaper. The firm had cited lower tomato and LPG cylinder prices as the main factors for the price correction.

Retail inflation declined to 6.83 per cent in August compared to July, mainly due to easing food prices, according to official data.

The Consumer Price Index (CPI) based inflation was at 7.44 per cent in July and at 7 per cent in August 2022, as per the data released by the National Statistical Office (NSO) on Tuesday.

Food inflation eased to 9.94 per cent in August from 11.51 per cent in July.

The Reserve Bank of India (RBI) has projected the CPI inflation at 5.4 per cent for 2023-24.