July's retail inflation is believed to have surpassed the Reserve Bank of India's upper tolerance threshold of 6%, as indicated by a recent poll. In a survey conducted by Reuters, economists forecast that India's retail inflation reached 6.40% in July due to a surge in food prices. This marks the first instance in five months that the inflation rate has breached the 2%-6% tolerance band set by the Reserve Bank of India. Notably, food prices, which contribute to almost half of the inflation basket, have soared in the last two months. The erratic monsoon that has swept across the country is largely responsible for this, causing wholesale tomato prices to skyrocket by over 1,400% in the past three months.
The impact of this inflationary trend will be felt primarily by India's impoverished and middle-class populace. Regrettably, the Reserve Bank of India is unlikely to respond to these figures and is anticipated to maintain unchanged interest rates during its upcoming Thursday meeting.
The recent Reuters poll, conducted between August 3 and 8, encompassing 53 economists, forecasts a 6.40% annual increase in the consumer price index (CPI) for July. This projected range spans from 4.85% to 7.60%. Significantly, a substantial majority anticipates that the inflation rate will surpass the central bank's upper target, implying that the escalation in food prices is likely to persist for the upcoming weeks.
Rahul Bajoria, Chief India Economist at Barclays, remarked, "There are no indications of a sequential easing in food prices during August." He further noted, "Though the month is still in its early stages, we expect the CPI inflation figures to remain elevated in the next couple of months, gradually subsiding in Q4 of 2023."
Out of the economists surveyed, a considerable 86%, or 24 out of 28, expressed the opinion that inflation will remain above 6% by the close of the ongoing quarter.
Should the poll's median projection prove accurate, the current inflationary surge is poised to surpass the Reserve Bank of India's projected 5.2% for this quarter. Kunal Kundu, India Economist at Societe Generale, remarked, "Typically, abrupt upswings in food inflation endure for three to four months before reverting to the mean, often resulting in a sharp decline." However, he did concede that exceptions to this trend exist.
The survey also shed light on wholesale price inflation, ie., specifically, the year-on-year shift in producer prices,which is predicted to have contracted by 2.70% in July. This follows a 4.12% decline in June. Inflation Demystified How Rising Prices Affect Your Wallet
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