Retail as well as wholesale inflation turned sharply higher in July, but remained far below the RBI’s comfort level of 4%, leading to the chorus of lower rates getting louder.
Retail inflation as measured by the consumer price index (CPI) jumped to 2.36% in July on a yearly basis after easing for three straight months. The rise in CPI was chiefly driven by hardening of prices in sugar and confectionery items, pan, tobacco and intoxicants.
However, there was disinflation in the food basket. The Reserve Bank, which factors in CPI for arriving at its monetary policy, had earlier this month slashed the key interest rate (repo rate) by 25 basis point to 6%. However, the industry expects a bigger rate reduction.
Another macro-economic indicator for July showed that the wholesale price index (WPI) inflation rose sharply to 1.88% — first rise in five months — as some food articles turned dearer even as the industry pitched for a cut in interest rates citing weak industrial activity.
On the inflation data, Economic Affairs Secretary Subhash Chandra Garg in a tweet said: “Both WPI and CPI inch up in July at 1.88% and 2.4% year on year. But still below the comfort level of 4%.”
In its third bi-monthly monetary policy statement of 2017-18, the RBI had said the monetary policy committee remains “focused on its commitment to keeping headline inflation close to 4% on a durable basis”. India Inc believes that there is room for further rate cut by the RBI to boost investments from the private sector and revive industrial growth. “Given the trend and outlook for inflation, we see clear space for a more accommodative stance in the monetary policy.
This is all the more important, given the state of industrial sector where growth is anaemic,” said industry chamber Ficci. According to the CPI data released by the Central Statistics Office, food inflation saw deflationary pressure at (-)0.29% in July as against (-)2.12% in June this year.
The mid-year Economic Survey tabled in Parliament last weak had said that with inflation ruling low, there is scope for reducing RBI’s key policy rate by 25-75 basis points.
Icra Principal Economist Aditi Nayar said businesses may see the impact of the Goods and Services Tax (GST), rolled out from July 1, on prices over the course of the ongoing quarter, before passing through changes related to area-based exemptions and input tax credit.
Meanwhile, trade data for July released by the commerce ministry revealed that India’s exports growth slowed to eight-month low of 3.94% in July while trade deficit widened to US$ 11.44 billion on account of high gold imports.
The country’s overseas shipments aggregated US$ 22.54 billion in July 2017 against US$ 21.68 billion in the same month last year, a growth rate of 3.94%. It is the lowest export growth since November 2016 when shipments had expanded by 2.29%. Thereafter, the growth rate had risen to 27.59% in March before it started to decelerate. Imports rose by 15.42% to US$ 34 billion in July, from US$ 29.45 billion in the year-ago month, due to a jump in inward shipments of crude oil and gold. Gold imports firmed up 95% to US$ 2.10 billion in July against US$ 1.07 billion in the same month last year.