NEW DELHI: Retail inflation softened to a near 5-year low in July, led by a moderation in vegetables, fruits and spices and the impact of a statistical high-base effect, bringing much-needed relief from the stubborn price pressures witnessed in the past few months and triggered hopes of a cut in interest rates in the second half of the fiscal year.
Separate data showed industrial output growth, as measured by Index of Industrial Production (IIP), moderated to a five-month low of 4.2% in June from the seven-month high of 6.2% as manufacturing sector slowed, while mining recorded a double digit expansion during the month.
The retail inflation data, which was released by the National Statistical office (NSO) on Monday, brought some cheer as price pressures appeared to have eased. Retail inflation, as measured by the consumer price index (CPI), slowed to a 59-month low of 3.5%, lower than the 5.1% in June and below the 7.4% recorded in July last year. Rural inflation was at 4.1%, while urban was at nearly 3%. The food price index was at 5.4%, lower than the 9.4% in June.

Retail inflation falls to near 5-year low of 3.5% in July.

The food and beverages inflation moderated to a 13-month low of 5.1% after remaining above the 7% mark for the past eight months. The key driver of the easing was vegetable inflation, which softened to 6.8% in July from 30% in June, but month-on-month vegetable prices rose.
“Aided by pick-up in rainfall since early-July 2024, the cumulative sowing of kharif crops exceeded the year-ago level by 1.4% as on Aug 12, 2024. The IMD’s expectations of above normal rainfall during Aug-Sept, amidst the likely development of La Nina conditions at end-Aug 2024, augurs well for kharif crops, although we remain watchful of the episodes of heavy rainfall and flooding across some states that could harm the standing crops and impact perishable prices during this period,” said Aditi Nayar, chief economist at ratings agency ICRA.
She said that with all of the 22 essential commodities reporting an easing in their year-on-year inflation rates till Aug 10, as per the department of consumer affairs data relative to July 2024, the food and beverages inflation print should ease further in the ongoing month, dampening the headline retail inflation to 3.4% in Aug 2024. “Nevertheless, the trajectory of perishable prices remains a key monitorable in the near-term,” said Nayar.