India’s July Inflation Breaches RBI’s Tolerance Level at 6.40%


India’s retail inflation surged to 6.40% in July, surpassing the Reserve Bank of India’s upper limit of the 2%-6% tolerance band for the first time in five months. Economists highlighted the acceleration, primarily driven by soaring food prices.

Food prices, comprising a significant portion of the inflation basket, spiked due to erratic monsoon conditions across the country. Wholesale markets saw tomato prices rise over 1,400% in three months.

The impact of this surge is likely to affect the majority of the population. People whose income is below the poverty threshold or people with low-income instead. However, the RBI is expected to maintain unchanged rates during its meeting this Thursday.

The poll, conducted from August 3-8, revealed economists’ predictions of a 6.40% annual rise in the consumer price index (CPI).

A substantial majority expects this surge to continue, with many foreseeing elevated inflation over the current quarter.

Rahul Bajoria, Chief India Economist at Barclays, stated that there are no signs of moderation in food prices for August. He expects CPI inflation to remain elevated in the coming months and then ease in Q4 2023.

Kunal Kundu, India Economist at Societe Generale, noted that sudden spikes in food inflation tend to mean revert after a few months, resulting in sharp declines.

The survey also indicated a likely 2.70% year-on-year decline in wholesale price inflation for July, following a 4.12% drop in June.