Retail inflation fell to a three-month low of 5.59% in July from 6.26% in the previous month as the rate of price rise in food items, particularly vegetables, declined.
Food prices, which account for nearly half of the inflation basket, rose 3.96% year-on-year in July from 5.15% a month before.
The Reserve Bank of India (RBI) held its repo rate at a record low last week, but it raised its inflation forecast amid signs that policymakers could be edging closer to tapering pandemic-induced stimulus.
The fall in the food basket was mainly due to a dip in prices of vegetables that slipped (-)7.75% and cereals and products which declined (-)1.75% in July. Apart from this, sugar and confectionery too dipped (-)0.52%. On the other hand, prices of oils and fats surged 32.53% on the year, the egg prices segment saw a rise of 20.82% and that of pulses and products rose 9.04% and fruits gained 8.91%. Non-alcoholic beverages climbed 14.44%.
Industrial output rose by 13.6% in June as against a 16.6% contraction in June 2020, indicating a waning of the low base effect of last year, according to a separate set of data released by the NSO.
In its August policy meeting, the RBI maintained the status quo on rate but stated that high-frequency indicators suggest softening of price pressures in edible oils and pulses in July in response to supply interventions by the Government. While input prices are rising across manufacturing and services sectors, weak demand and cost-cutting are tempering the pass-through to output prices, it said.
The RBI had raised the CPI inflation forecast at 5.7% from 5.1% estimated earlier during the ongoing financial year 2021-22 (FY22). It sees CPI inflation at 5.9% in Q2, 5.3% in Q3, 5.8% in Q4 with risks broadly balanced. The CPI inflation for Q1 FY23 is projected at 5.1%.
The latest inflation figures come amid a fall in COVID-19 infections, and a pickup in the pace of vaccinations in the country, although many policymakers are still worried about the possibility of a third wave of the pandemic.