Vegetable and grain prices surged in July, exceeding all market estimates and pushing India’s annual retail inflation to its highest level in 15 months. This put pressure on the government to act to lower prices.
India’s annual retail inflation (INCPIY=ECI) increased significantly from 4.87% in June to 7.44% in July. 53 economists were surveyed by Reuters and predicted a rate of 6.40%. The figure was the highest since the print of 7.79% in April 2022.
The figures breached the upper end of the central bank’s inflation band of 2%-6% for the first time in five months.
“The spurt in CPI inflation in July 2023 was on expected lines, however, 7.44% retail inflation was totally unexpected,” said Devendra Pant, economist at India Ratings.
Food inflation, which accounts for nearly half of the overall consumer price basket, rose at a staggering pace of 11.51% in June as compared with 4.49% in June. Retail food inflation was at its highest since January 2020, when it was over 13%.
Last week, the Reserve Bank of India (RBI) raised its inflation forecast for the current financial year to 5.4% from 5.1% earlier, citing pressures from food prices. In the July-September quarter, it now sees inflation at 6.2%, significantly higher than the 5.2% earlier forecast.
Vegetable inflation rose by a whopping 37.34% after a fall of 1% in the previous month. Prices of some of the most used vegetables in Indian kitchens, including tomatoes, onions, peas, brinjal, garlic and ginger, have more than doubled in the last few months.
Cereal inflation in July increased to 13.04% from 12.7% in June. Last month, the Indian government banned exports of non-basmati white rice, triggering fears of further inflation in global food markets.
“While the spurt in vegetable prices is seasonal, the worrying trend is the structural nature of cereals inflation,” Pant said.
The Reserve Bank of India held its key lending rate steady on Thursday, as expected, but moved to reduce the amount of cash in the banking system as inflation concerns resurfaced following higher-than-usual seasonal spikes in food prices in recent weeks.
India’s wholesale price inflation fell at a smaller than expected pace because of higher prices for food.
However, core retail inflation, which strips out volatile food and energy prices, was estimated to be 4.9% to 4.97% for the month.