India's July CPI Inflation At 7.44% & Consumer Food Price Inflation At 11.51%

The Consumer Price Index (CPI) based inflation rate was 7.44 per cent in July compared to 4.87 per cent in June, the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSP) reported on Monday.

For the first time in five months, retail inflation exceeded the Reserve Bank of India's tolerance band of 2-6% in July with the consumer price index jumping to 7.44 per cent. The steep spike in vegetable costs, particularly tomatoes in the past month, was the main cause of the inflation increase.

The CPI inflation rate for July was much above economists' projections of an expected 6.6 per cent increase in prices.

The consumer food price index (CFPI) increased from 4.49 percent in June to 11.51 per cent. India's rural inflation in July increased to 7.63 per cent YoY from 4.78 per cent, while urban inflation shot up to 7.20 per cent from 4.96 per cent a month ago.

Mr. Nish Bhatt, Founder & CEO, Millwood Kane International, said, "India's retail inflation rate surged to nearly a 15-month high of 7.44 per cent in July, breaching the upper limit of the Reserve Bank of India's (RBI) tolerance band of 2-6 per cent. This is much higher than industry predictions of 6.4- 6.5 per cent. This sharp rise can be attributed to higher food inflation of 11.51 percent, a cause of concern. We expect this inflation rate to be short-lived as the long-term fundamentals of the Indian market remain strong. We may likely see the rate start softening up in Q4, once we approach the election."

Mr. Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers, said, The increase in wholesale price inflation this afternoon suggested that the increase in retail inflation for the month of July 2023 might be worse than expected. Nonetheless, the actual retail inflation figures surprised us. While the increase in retail inflation is primarily due to food, particularly vegetables, there are a number of other upside risks to future inflation. The most recent monetary policy was announced on the assumption that, while a spike in food inflation is possible, it is highly likely to be transitory. With the spike being significantly higher than expected, we are sceptical that inflation will return to its glide path anytime soon. The silver lining could be relatively range-bound core inflation. However, the RBI considers inflation to be primarily a monetary phenomenon. Under this view, it makes no difference whether the inflation comes from core or non-core component parts, because even high non-core inflation eventually gets transmitted to the core via the wage-price spiral. Given this backdrop, another 25-basis point rate hike by the RBI is a distinct possibility. At the same time, a rate cut in the next 12 months appears extremely unlikely. We anticipate that the increase in inflation will have a negative impact on both the bond and equity markets."