An Ouch Moment for RBI – Inflation Falls Below 4%

The annual consumer inflation in India fell to 3.7% in August from 4.2% in July to mark the the lowest inflation rate since October 2017, on the back of a sharp decline in cost of food.

Inflation

Key highlights from the consumer inflation release:

  • Food and beverages (F&B) inflation fell to 0.9% in August from 1.7% in July.
  • Prices of fruits rose by 3.6% compared to a 7% rise in July.
  • Prices fell sharply by 7% for vegetables compared to a 2.2% decline.
  • Pulses and products inflation continued downtrend and fell by 7.8% compared to a 8.9% decline in July
  • Sugar and confectionery inflation also fell by 5.5% compared to a 5.8% decline in July
  • Prices rose a little faster by 1.9% for non-alcoholic beverages compared to a 1.4% rise in July
  • Among non-food products, prices rose at a softer pace for housing, clothing and footwear, pan, tobacco and intoxicants
  • Inflation rose mildly for fuel and light to 8.5% compared to 8% in July
  • Rural inflation rose by 3.4% whereas urban inflation rose by 4% in August
  • On a monthly basis, consumer prices increased 0.4% in August, after a 0.9% rise in July.

This inflation release has put RBI in a dilemma of interest rate hike. There is a very strong argument in favor of interest rate hike due to weaker Indian rupee and continued rise in fuel price however the this lower than expected inflation print has complicated RBI’s task.

inflation

Read: Commodities Performance: One Word – Volatile

While the continued decline in global commodities prices and August month’s inflation has provided some relief to consumers, the RBI’s monetary policy committee need to find a balance between the falling rupee and inflation.

 

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