The Reserve Bank of India, which has had the unenviable task of battling elevated inflation during the Covid-19 crisis, may have something to cheer about as the country’s retail inflation, measured by the Consumer Price Index (CPI), eased to 5.59% in July.
For May and June, CPI inflation was above the MPC’s target band. Retail inflation was 6.30% in May, as food prices had hardened, and transportation costs rose due to higher petrol and diesel prices and localised lockdowns. Headline retail inflation had cooled slightly to 6.26% in June. Retail inflation has cooled off in July mainly due to softening food prices.
This is the first time in three months that the CPI data has come below the RBI’s upper margin of 6%. CPI data is primarily factored in by the RBI while making its bi-monthly monetary policy
Here’s what experts are saying on how would this be read by the RBI
Aditi Nayar, chief economist, ICRA
Rupa Rege Nitsure, group chief economist, L&T Financial Holdings
Today’s data points vindicate the RBI’s decision to calibrate the policy normalisation in a gradual fashion. This to a great extent reflects a slowdown in demand due to the COVID-19’s second wave A negative y-o-y growth in consumer non-durable goods despite the favourable statistical base vindicates the claim of demand destruction by the second wave, especially in the rural belts.
Radhika Rao, economist, DBS Bank
Looking ahead, there are latent pressure points to keep an eye on, as inflationary expectations firmed up in the latest survey. As states ease restrictions, there is likely to be a shift away from goods to services-led inflation, with firmer demand to also encourage producers to increasingly pass higher input prices.
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