India’s Consumer Price Inflation Hits 59-Month Low of 3.54% in July

India’s consumer price inflation dropped to a 59-month low of 3.54% in July 2024, marking a significant decline from the previous year’s level and falling below the Reserve Bank of India’s (RBI) medium-term target of 4% for the first time in nearly five years. The data, released by the Ministry of Statistics on Monday, reflects easing pressures on household budgets and signals potential changes in the economic landscape.

The decline in inflation was driven in part by a reduction in the prices of cooking oil and spices, which fell by over 1% during the month. Additionally, the price rise for vegetables moderated to 6.83%, thanks to an increased supply in the market. This was a stark contrast to June when vegetable prices surged by 29.32% due to a severe heat wave in northern states that impacted production.

Cereal prices saw a modest increase of 8.1% in July, down from 8.65% in June. Overall, food inflation, which constitutes nearly half of the consumer price basket, eased to 5.06% in July, a significant drop from 8.36% in the previous month.

ICRA’s Chief Economist, Aditi Nayar, noted that the food and beverages inflation fell to a 13-month low of 5.1% in July after remaining above 7% for the past eight months. She added that with all 22 essential commodities showing a decline in year-on-year inflation rates in August, food and beverages inflation is expected to decrease further, potentially bringing headline consumer price index (CPI) inflation down to 3.4% in August. However, Nayar cautioned that the trajectory of perishable prices remains a critical factor to monitor in the near term.

The RBI has set a mid-term target of 4% for retail inflation as a prerequisite for considering interest rate cuts to stimulate economic growth. On Thursday, the RBI decided to keep the key policy repo rate unchanged at 6.5% for the ninth consecutive meeting. This decision reflects the central bank’s continued effort to balance the need for economic growth with the necessity of keeping inflation under control.

RBI Governor Shaktikanta Das stated that the Monetary Policy Committee had voted by a 4:2 majority to maintain the current repo rate, noting that inflation had risen above 5% and remained above the target level of 4%. He emphasized that price stability is essential for sustaining growth, and therefore, the RBI would continue with its disinflationary stance.

However, Das expressed optimism that the country’s inflation rate would decrease in the third quarter of the current financial year, offering some relief to policymakers and the public alike.