Retail inflation in July eases to five-year low

India’s retail inflation in July eased to 3.54%, the lowest in five years and below the Reserve Bank of India’s target range, on a sharp decline in food inflation, provisional data released on Monday showed.

Analysts attributed the decline to the high base effect of last year, while cautioning that it may rise in the coming months. Inflation based on the Consumer Price Index (CPI) was 7.44% in July of last year, and 5.08% in June this year

Food inflation slowed from a high of 9.36% in June to a 13-month low of 5.42%, data showed.

“Despite the moderation in the inflation of the food and beverage basket when compared to last year, the sequential momentum remains strong, with a 2.5% month-on-month (m-o-m) increase in prices, higher than an average sequential growth of 1.3% m-o-m in Q1 FY25,” Rajani Sinha, chief economist at CareEdge, said.

“Much of the sequential increase in food prices is due to a sharp rise in vegetable prices which rose 14.1% m-o-m. The early arrival of kharif harvests in the second half of September is expected to cool this sequential momentum in food prices,” Sinha added.

“The CPI inflation moderated sharply to 3.5% in July from 5.1% in June, largely on account of a favourable base of last year. Core inflation remained largely benign, rising to 3.4% in July, up from 3.1% in June, likely reflecting recent hikes in telecom tariffs and the upward revision of fuel prices in certain states,” Sinha said.

CareEdge said it would be crucial to monitor the distribution of rainfall and kharif sowing as despite a pick-up in monsoon rains, key agrarian regions continue to face significant deficit in rainfall.

Factory output slows

The Index of Industrial Production (IIP), which measures India’s factory output, slid to a five-month low of 4.2% in June, dragged down by manufacturing, official data showed.

Growth in manufacturing, which contributes two-thirds of the index, halved to 2.6% in June against the 5% expansion in May, data released by the ministry of statistics and programme implementation showed.
Electricity output in June moderated to 8.6% against 13.7% in the previous month, the data showed.

The performance in consumption-related segments was mixed, with the output of consumer durables rising by 8.6% while non-durables output declined by 1.4%.

“Broad-based consumption improvement and the revival of private investment remain crucial for the industrial activity. From the consumption perspective, the trajectory of food inflation and progress of monsoon remain the key monitorables,” CareEdge’s Sinha said.

“With a slowdown in government capex amid the elections and lacklustre rural demand as well, we anticipate a moderation in the gross domestic product (GDP) growth print for the April-to-June quarter of the current fiscal,” Aditi Nayar, chief economist and head of research and outreach at ICRA Ltd, said.