India's retail inflation breaches RBI's upper tolerance limit; vegetables, fruits key contributors

New Delhi [India], August 14 (ANI): Retail inflation in India rose sharply in July to 7.44 per cent and in the process breached RBI's 6 per cent upper tolerance target, largely due to a sharp spurt in vegetable, fruits, and pulses prices.

The inflation index for rural and urban was 7.63 per cent and 7.20 per cent, respectively.

In June too, the overall retail inflation too rose considerably to 4.81 per cent, largely due to a sharp spurt in vegetable prices. Back in May, the retail inflation was at 4.25 per cent, hitting a two-year low. It was at 4.7 per cent in April and 5.7 per cent the previous month.

According to the Ministry of Statistics and Programme Implementation data released Monday, the provisional index number for vegetables rose from 181.1 in June to 250.1 in July. Vegetables have a 6.04 per cent weightage on the overall retail inflation. For fruits and pulses, they rose from 172 and 223.1 to 179.7 to 231.1, respectively.

The rise in inflation could partly be attributed to the current spurt in tomato and other vegetable prices across India. The rise in tomato prices is reported across the country, and not just limited to a particular region or geography. In key cities, it rose to as high as Rs 150-200 per kg.

Amid a sharp spurt in tomato prices across the country, the Central government had directed its agencies - NAFED and NCCF -- to immediately procure the staple vegetable from mandis in key growing states of Andhra Pradesh, Karnataka, and Maharashtra.

Notably, retail inflation (Consumer Price Index) in India peaked at 7.8 per cent in April 2022, driven by a reduction in food and core inflation. In some advanced countries, inflation had in fact touched a multi-decade high and even breached the 10 per cent mark.

RBI's consistent monetary policy tightening since mid-2022 could be attributed to the substantial decline in inflation numbers in India. India's retail inflation was above RBI's 6 per cent target for three consecutive quarters and had managed to fall back to the RBI's comfort zone only in November 2022.

Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row. Barring the recent pauses, the RBI has raised the repo rate by 250 basis points cumulatively since May 2022 in the fight against inflation.

Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

Last week, the Reserve Bank of India upwardly revised the country's retail inflation projections for 2023-24 at 5.4 per cent, against 5.1 per cent it projected in its previous monetary policy meeting in June.

RBI Governor Shaktikanta Das, as part of his remarks after the policy meeting, said assuming a normal monsoon, retail inflation is revised to 5.4 per cent, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent. Retail inflation for Q1 2024-25 is projected at 5.2 per cent.

"The month of July has witnessed accentuation of food inflation, primarily on account of vegetables. The spike in tomato prices and further increase in prices of cereals and pulses have contributed to this. Consequently, a substantial increase in headline inflation would occur in the nearterm," said Das.

He reiterated what he said after the June meeting - "Bringing headline inflation within the tolerance band is not enough; we need to remain firmly focused on aligning inflation to the target of 4.0 per cent." (ANI)