Retail inflation is high due to food prices and an adverse base effect says Fin Min

• The Finance Ministry said that CPI-based inflation recorded ‘a moderate increase’.
• The inflation could be attributed to both an adverse base effect and an increase in food and fuel prices, as per the ministry.
• Both these are the transient components of CPI inflation, the ministry said.

As retail inflation rose to 7 per cent in August from 6.71 per cent in July, the Finance Ministry said late on Monday that consumer price index (CPI) based inflation "recorded a moderate increase", adding that it could be attributed to "both an adverse base effect and an increase in food and fuel prices - the transient components of CPI inflation".

It added through a series of tweets that core inflation calculated by excluding the transient components of CPI like "food and beverages" and "fuel and light" was recorded at 5.9 per cent in August, and thus remained below the tolerance limit of 6 per cent set by RBI for the fourth consecutive month.

"Prices of major inputs like iron ore and steel have sobered in the global markets. This coupled with the measures taken by the government to rationalise tariff structures of inputs to augment domestic supply has helped to keep cost push inflation in consumer items under control," the ministry said.

Despite erratic monsoon and negative seasonality in vegetable prices, food inflation in August was still lower than the April peak of the current year.

With global inflation pressures, inflationary expectations remain anchored in India with stable core inflation, the ministry said on an optimistic note.

"IIM-Ahmedabad's One-year Ahead Business Inflation Expectations Survey in July has declined by 34 bps to 4.83 per cent from 5.17 per cent in June. Inflation expectations have fallen below 5 per cent after 17 months," it said in another tweet.

"To soften the prices of edible oils and pulses, tariffs on imported items have been rationalised periodically and stock limits on edible oils have been kept, to avoid hoarding," the ministry said while listing the measures taken to curb prices of essential commodities.

Inflation in "oils and fats" and"pulses and products" have moderated to 5.62 per cent and 2.52 per cent, respectively, the Finance Ministry pointed out.

"The government has prohibited exports of food products like wheat flour/atta, rice, maida etc. to keep domestic supplies steady and curb rise in prices. The impact of these measures is expected to be felt more significantly in the coming weeks and months," it said.

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