Retail inflation in the country fell sharply to a five-year low of 3.54% in July from a year ago, largely aided by a favourable base effect and some moderation in food prices, data from the ministry of statistics and programme implementation released on Monday showed.
Food prices, which have been elevated for over a year, rose 5.42% in the month on-year, the lowest since June 2023, on the back of slowing inflation in vegetables. Yet, vegetable prices were still elevated at 6.83%, compared to 29.32% a year ago.
The base effect is a statistical outcome that makes any economic value, such as GDP or inflation, appear high if it had been compared to a previous corresponding period when the value was too low and vice versa.
Sticky food inflation, which have knocked household budgets, has been a key concern of the Reserve Bank of India and July’s inflation print will come as a big respite for the central bank. On August 8, the central bank kept its benchmark repo rate unchanged at 6.5% for the sixth straight meeting, staying focused on anchoring inflation.
These benchmark rates are key to boosting credit and investments by businesses in the economy. The RBI continues to cite food-price inflation as a continuing risk.
“Uncertainty in food prices continues to impinge on headline inflation,” RBI governor Shaktikanta Das had said after the rate-setting meeting in Mumbai. The monetary policy will remain actively “disinflationary”, he added.
Among major commodities, cereal prices rose by 8.14% in July from a year ago, against a rise of 8.75% in June. The price of oils and fats fell by 1.17% compared to a decline of 2.68% in the previous month. Inflation in pulses rose 14.77% from a year ago. In June, pulses prices increased by 16.07%.
Among non-food items, clothing and footwear prices climbed 2.67%, while housing inflation stood at 2.68% from a year ago.
The government collects retail-price data from selected 1,114 urban markets and 1,181 villages covering all states to gauge inflation, which directly impacts people’s income and economic growth.
“A degree of relief in food prices is expected from the pick-up in the southwest monsoon and healthy progress in sowing,” the RBI’s monetary policy committee had said in its review last week.