India’s retail inflation has reached a 15-month high due to rising food prices.

India's retail inflation has reached a 15-month high due to rising food prices.

India’s Retail Inflation Sets New High Amid Skyrocketing Prices

India Retail Inflation

In a surprising turn of events, India’s annual retail inflation reached its highest level in 15 months in July. This surge was driven by skyrocketing prices of vegetables and cereals, surpassing all market expectations. These inflationary pressures have put the government under immense pressure to take action and bring down prices.

According to a poll conducted by ANBLE, India’s annual retail inflation rose sharply from 4.87% in June to 7.44% in July. Analysts had predicted a rate of 6.40%, highlighting the significant deviation from expectations. This figure represents the highest level since April 2022 when it stood at 7.79%. The recent figures have breached the upper end of the central bank’s inflation target band of 2%-6% for the first time in five months.

Monthly Inflation Chart

“The spurt in CPI inflation in July 2023 was on expected lines; however, 7.44% retail inflation was totally unexpected,” said Devendra Pant, an analyst at India Ratings. Food inflation, which accounts for nearly half of the overall consumer price basket, rose at an alarming rate of 11.51% in July, compared to 4.49% in June. Retail food inflation has reached its highest level since January 2020, surpassing 13%.

The Reserve Bank of India (RBI) recently raised its inflation forecast for the current financial year from 5.1% to 5.4%, citing pressures from food prices. In the July-September quarter, the RBI projects inflation to reach 6.2%, significantly higher than the previous forecast of 5.2%.

Vegetable Inflation Chart

The sharp rise in vegetable prices played a significant role in the overall inflationary pressure. Vegetable inflation increased by a staggering 37.34% following a 1% decline in the previous month. Prices of commonly used vegetables in Indian households, such as tomatoes, onions, peas, brinjal, garlic, and ginger, have more than doubled in the past few months.

Cereal inflation also showed an increase, rising to 13.04% in July from 12.7% in June. The Indian government’s ban on non-basmati white rice exports further fueled concerns of inflation in global food markets.

“While the spurt in vegetable prices is seasonal, the worrying trend is the structural nature of cereal inflation,” highlighted Pant.

Cereal Inflation Chart

In response to these inflationary pressures, the Reserve Bank of India decided to hold its key lending rate steady. However, it took steps to reduce the amount of cash in the banking system, considering the renewed concerns about inflation following the recent surge in food prices.

Although India’s wholesale price inflation declined, it did so at a smaller pace than expected due to higher prices for food. Moreover, the core retail inflation, which excludes volatile food and energy prices, was estimated to be in the range of 4.9% to 4.97% for the month.

These recent developments in India’s retail inflation underscore the challenges faced by the government in managing price levels. Inflationary pressures, especially in the food sector, must be addressed through strategic measures to ensure stability and affordability for consumers.