India's CPI Inflation Lowest In 59 Months, At 3.54% In July 2024; Repo Rate Cut In October 2024?

India's consumer price index (CPI) inflation has eased to 3.54% in July 2024, the lowest number in last 59 months. This also means that CPI inflation is now well-below RBI's medium term target of 4%, hence, hinting at a rate cut possibility sooner than expected.

The Ministry of Statistics & Programme Implementation said, there is a sharp decline in the year-on-year inflation rate based on the All India Consumer Price Index (CPI) number for July 2024, which is the lowest in the last 59 months.

Data from the ministry stated that CPI inflation in July 2024 came in at 3.54% (provision), compared to a 5.08% inflation rate in June 2024, and against at 7.44% in July of the previous year. In July 2024, the rural and urban inflation rate stood at 4.10% and 2.98% respectively.

The latest inflation print cooled off sharply due to food inflation which is the lowest since June 2023. In the month under review, the consumer price food index (CFPI) stood at 5.42% versus 9.36% in May 2024 and 11.51% in July 2023.

"During July 2024, there is a decline in inflation for all the groups. Significant decline is in the vegetables, fruits and spices subgroup," the ministry said.

On segment-wise, the food and beverages inflation rate is at 5.06% in July 2024, while the inflation rate is at 3.02% for pan, tobacco and intoxicants. Meanwhile, the clothing and footwear inflation rate is at 2.67%. Additionally, housing inflation is at 2.68%, and fuel & light witnessed disinflation to a staggering (-) 5.48% in the said month.

Chances of a rate cut in the upcoming policy which would be in early-October 2024 have heightened since RBI has managed to bring inflation below its limit. If not a rate cut, the chance of a change in monetary policy stance is also high as well.

In the August 2024 policy, RBI governor Shaktikanta Das said, "The commitment of monetary policy to ensure price stability would strengthen the foundations for a sustained period of high growth. Hence, the MPC reiterated the need to continue with the disinflationary stance of withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth."

RBI has kept repo rate unchanged for the ninth time in a row to 6.50%. The six-member MPC said that these decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

Inflation is also lower than market expectations. As per Trading Economics, Inflation Rate in India decreased to 3.54 percent in July from 5.08 percent in June of 2024. Inflation Rate in India averaged 5.95 percent from 2012 until 2024, reaching an all time high of 12.17 percent in November of 2013 and a record low of 1.54 percent in June of 2017.

Also, lower than RBI's target. Assuming a normal monsoon, in August monetary policy, RBI projected CPI inflation for 2024-25 at 4.5 per cent with Q2 at 4.4 per cent; Q3 at 4.7 per cent; and Q4 at 4.3 per cent. CPI inflation for Q1:2025-26 is projected at 4.4 per cent. The risks are evenly balanced.