India's August retail inflation eases to a four month low

NEW DELHI (Reuters) -India’s retail inflation eased to a four-month low in August on softer food prices as supply side constraints eased following the lifting of pandemic-related restrictions, which may allow the central bank to focus further on economic recovery.

FILE PHOTO: A vendor sleeps as his son waits for customers at their roadside vegetable shop in New Delhi, India, February 12, 2019. REUTERS/Adnan Abidi

Consumer prices rose 5.30% in August from the same month last year, lower than July’s 5.59% annual inflation rate and below a Reuters poll forecast of 5.60%, data released by the Ministry of Statistics showed on Thursday.

In April, retail inflation stood at 4.29%.

Food prices, which account for nearly half of the inflation basket, rose 3.11% year-on-year in August from 3.96% a month before.

“The headline inflation came in softer than our expectations, largely led by downward surprise of food prices. We expect the subsequent readings to remain fairly benign and much lower than RBIs estimates,” said Upasna Bhardwaj, economist at Kotak Mahindra Bank.

With the latest numbers, inflation has stayed within the Reserve Bank of India’s (RBI) 2-6% comfort range for a second month in a row. But it has been above the medium-term target of 4% for nearly two years.

Last week, RBI Governor Shaktikanta Das said the central bank expected inflation to moderate and has focused on growth during the pandemic, content to operate within the 2%-6% band instead of a 4% retail inflation target.

He said the central bank would return to targeting 4% inflation, but the timing of that was not yet decided..

In August, prices of vegetables fell 11.68% from a year ago, while cereals fell 1.42%. However, retail fuel and electricity prices rose 12.95% in August and transport costs rose 10.24% from a year ago, the data showed.

Core inflation, excluding volatile food and fuel costs, was estimated between 5.77% and 5.8%, according to two economists, compared with 5.94% and 6.1% in July.

“Core inflation has also softened from last month. We expect the MPC to remain focused on growth as inflationary concerns remain under check,” said Suvodeep Rakshit, economist at Kotak Institutional Equities, referring to the RBI’s Monetary Policy Committee.

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