By Nikunj Ohri and Aftab Ahmed
NEW DELHI (Reuters) -India’s retail inflation eased in August as food prices moderated, but remained above the upper end of the central bank’s target band for a second consecutive month, keeping policymakers watchful.
Annual Retail inflation in August was 6.83%, compared with 7.44% in July – a 15-month high – according to data released by the ministry of statistics on Tuesday.
The August print was lower than the 7% estimate of 45 economists polled by Reuters.
Food inflation, which accounts for nearly half of the overall basket, was up 9.94% in August compared with a rise of 11.51% in July.
“Offering a modicum of relief, the CPI inflation eased below the 7% mark … largely led by vegetables, amidst some moderation in the prints for clothing and footwear, housing and miscellaneous items as well,” said Aditi Nayar, economist at ICRA.
Food prices have been a key concern for policymakers since last year as erratic weather conditions have hurt the output of vegetables, milk and cereals.
Inflation has been above the central bank’s 2%-6% target band for seven months out of the last 12.
Earlier this month, Reserve Bank of India (RBI) Governor Shaktikanta Das said India’s monetary policy committee would remain watchful of the evolving inflation situation, but the recent spikes in vegetable prices would start to ebb.
Vegetable inflation eased to 26.14% in August from 37.34% in the previous month. Cereal inflation in August eased to 11.85% from 13.04% in July.
In its efforts to rein in domestic inflation, India’s government banned exports of non-basmati white rice last month and imposed a 20% duty on exports of parboiled rice, while imposing a 40% tax on onion exports. It has banned exports of wheat since last year.
UPSIDE RISK
Inflation is expected to remain elevated in the coming months as a weak monsoon, lower reservoir levels and rising crude prices are likely to keep the pressure on food prices.
“Upward pressure on food inflation persists with nearly 60% of the food and beverages subcomponents by weight seeing 6% plus inflation in August,” said Gaura Sen Gupta, economist at IDFC First Bank (NASDAQ:) Economics Research.
prices have also started inching up, with rising above $90 a barrel last week for the first time in 10 months.
India also lowered the price of cooking gas cylinders sold to 330 million households and might even expand its free food programme beyond December.
Core inflation, which strips out volatile food and energy prices, was estimated to be between 4.6% and 4.9%, compared with 4.9% to 4.97%, according to three economists. The Indian government does not release core inflation figures.
“RBI is likely to hold on to repo rate and stance under these conditions. Chances of rate hike are kept aside under the declining inflation scene,” said Madan Sabnavis, chief economist at Bank of Baroda.
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