India’s retail price index declined to 4.17% this July

Image Courtesy – Moody’s

The retail inflation price index in India cooled down to 4.17% in July which no one was expecting. This was due to the subdued food prices after the monetary committee increased interest rates second time.

CPI and RPI are two methods to calculate inflation. Consumer price index takes the average price of the economic resources purchased by the customers/buyers as the base. On the other hand, retail price index calculates the variations in prices of different economic goods.

The RPI went to 4.17% as compared to the five month high of 4.9% in June. Headline inflation went down for the first time as compared to the past 4 months. India’s rate setting panel has increased the lending rates twice this year which was in June and August for tackling the inflationary pressure. The Central Bank has had a long term plan to keep RPI below 4%. The Reserve Bank of India governor, Urijit Patel has said that they have tried to keep the RPI below 4% in June and in August.

Last year in July, inflation had increased from a record low due to the seasonal hike in vegetable prices. The RBI has a keen eye on the minimum support price i.e. MSP hikes as it is going to have an impact on the RPI once the procurement is done. RBI said, “The increase in the MSP of kharif crops will have a direct impact in the food inflation rates and headline inflation too.

The chief economist at India Ratings and Research, Davender Pant has said that core inflation which excludes food, fuel, transport and communication will moderate to a five month low to 5.7%. Core inflations were the reasons for the prices to have stayed inflated.

There are a lot of other risks to retail prices as well. Some of which are as follows-

1. Possibility of heightened oil prices

2. Volatility in financial markets at global level

3. Rising household inflation expectation

4. Fear of a fiscal state ahead

All the above can easily impinge the inflation outcomes.

Some internal facts about inflation are also highlighted and they are as follows-

1. Food price inflation is at 1.37% in July which is comparatively low from 2.9% in June

2. Fuel and light inflation is at 7.96% from 7.14% in June

3. Clothing and footwear inflation was at 5.28% as compared to 5.67% in June

4. Housing inflation is at 8.3% in July which was 8.45% in June