The Consumer Price Index-based Inflation (CPI) or retail inflation for August, 2021 has eased at 5.30%, compared to 5.59% in July, according to the National Statistical Office (NSO) data, published today. Consumer Food Price Inflation (CFPI) for August is at 3.11%, compared to 3.96% in the previous month.
Food prices, mostly in vegetables eased this month that led to that improvement in CPI. In addition to that, Aditi Nayar, Chief Economist of ICRA commented, "The welcome decline in the CPI inflation in August 2021 was broad-based, led by all the components except clothing and footwear, and fuel and power. Contrary to our apprehension, the CPI inflation receded appreciably, led by lower than expected food inflation." The core-CPI inflation eased to 5.5% in August from 5.7% in July. However, the heading price of edible oil is a concern still now, which registered a hike of 33% (y-o-y).
Madhavi Arora, Lead Economist, Emkay Global Financial Services commented to GoodReturns, "Today's CPI inflation surprise is lower by our estimates by 30bps, led by sequentially lower than expected food inflation. However, the core remains high and sticky. Core inflation may remain under pressure amid the lagging impact of passing on of high global commodities and margin pressures." She also thinks that the ensuing demand revival in contact-sensitive household services amid reopening could pressure core services inflation ahead. Overall, core inflation will likely remain sticky ahead and will likely outdo headline inflation through the year.
The surge in fuel costs and transportation costs led to high inflation rates in the domestic market, this fiscal. But since July, the CPI inflation came under control, within the Monetary Policy Committee's (MPC) target range. The CPI inflation has been above 6% in the 1st quarter of this fiscal, in May it was at a high of 6.30%.
Madhavi Arora later added, "The headline CPI may average almost 60 bps lower than the RBI's forecast of 5.7%. With the monetary reaction function currently hinging more on growth revival becoming sustainable, the RBI is unlikely to change key policy rates this year and the focus will be more on surplus liquidity management.
According to government sources, India's Kharif food grain production is likely to touch a new record of over 150 million tonnes in 2021-22 crop year. With better food grain productions and easing fuel prices in the country, inflation should improve in the next quarters.
However, Aditi Nayar is expecting a policy normalization in February, next year, "with a change in the stance of monetary policy to neutral from accommodative, followed by a hike in the repo rate of 25 bps each in the April 2022 and June 2022 meetings."