Retail Inflation: Big drop in retail inflation in July, figure reached below four percent after five years

Retail inflation fell to 3.54 per cent in July, below the Reserve Bank’s 4 per cent target for the first time in nearly five years, according to government data released on Monday. The decline was due to a fall in food prices. Consumer Price Index (CPI)-based retail inflation fell to 3.54 per cent in July from 5.08 per cent in June 2024 and 7.44 per cent in July 2023. According to data from the National Statistical Office (NSO), food inflation stood at 5.42 per cent in July as against 9.36 per cent in June.

 

The last time inflation was below 4 per cent was in September 2019. The government has tasked the Reserve Bank of India (RBI) with maintaining CPI inflation at 4 per cent, with an acceptable margin of 2 per cent on either side. Rising food prices have been a major concern for Indian consumers, with food inflation nearly doubling year-on-year in June to 8.36 per cent compared to 4.63 per cent in the same month of 2023. This steady rise in food prices has been a challenge for Indian policymakers, who aim to maintain retail inflation at 4 per cent.

However, recent inflation data indicate progress toward this goal. In May, annual retail inflation eased to a 12-month low of 4.75 per cent, slightly lower than the 4.83 per cent in April. The Consumer Price Index (CPI) had registered 5.7 per cent in December last year but has been moderating since then. Although retail inflation has remained within the RBI’s comfort zone of 2-6 per cent, it was above the earlier ideal 4 per cent target.

 

Inflation has been a concern globally, including in advanced economies, but India has managed to control its inflation trajectory relatively effectively. The decline in retail inflation month-on-month, barring June, comes after the RBI’s decision to keep the repo rate unchanged for the ninth time in a row. Since May 2022, the RBI has cumulatively increased the repo rate by 250 basis points to tackle inflation.