Inflation declines to 6.87% in July
New Delhi: Inflation in July moderated to 6.87 percent --lowest since November 2009-- helped by decline in vegetable prices, even as food inflation stayed in double digit and manufactured items remained under price pressure.
Though the inflation has moderated in July, from 7.25 percent in June, it remains much above the 5-6 percent comfort level of the Reserve Bank. While the drop in the inflation number has come as a surprise, common households continue to pay high prices for edible items.
Inflation, as measured by the Wholesale Price Index (WPI), was 9.36 percent in July last year.
While inflation for vegetables has eased in July as compared to June, the wholesale prices are still high above the comfort level. The annual rate of price rise was 24 percent in July, though it was 49 percent in the June.
Food inflation, which accounts for nearly 15 percent in the overall inflation basket, was at 10.06 percent in July, easing a little from June's 10.81 percent, as per official data released today.
Manufacturing or core inflation rose to 5.58 percent in July from 5 percent in June, on the back of high prices of cotton textiles, paper and paper products, cement and lime.
Higher inflation in this category would restrict the scope of RBI to go in for an interest rate cut even as economy is showing signs of slowdown, experts said.
RBI Governor D Subbarao had on Monday said that inflation over seven percent is above the tolerance level and stressed on the need for containing price pressure.
Commenting on inflation number, Planning Commission Deputy Chairman Montek Singh Ahluwalia said, "the dip is welcome but inflation is still above the comfort level. 5 to 6 percent is tolerable level of inflation".
Experts, however, said that the dip in inflation was unexpected and that deficient-monsoon and supply constraints would keep the number high in the coming months.
The drought-like situation in some parts of the country could affect agricultural production and may have its impact on prices of essential commodities, according to Food Minister K V Thomas.
As on August 12, overall rainfall deficit for the country as a whole was 16 percent.
Research firm Nomura said that the dip in inflation was "largely due to lower inflation in the volatile vegetable category and lower fuel prices. We do not see today's positive WPI reading as a reason for the RBI to cut rates".
The RBI would come out with its mid-quarter monetary policy review on September 17.
In food articles category, potatoes turned expensive by 73 percent, rice by 10.12 percent, cereals by 8.29 percent and pulses by 28.26 percent on annual basis in July.
Besides, eggs, meat, fish prices were up by 16 percent. Inflation in milk prices was 8.01 percent and for vegetables it was 24.11 percent.
"The rise in the price level month-on-month for pulses and cereals reflects the below-normal sowing on the back of a rainfall deficit and rising minimum support prices," ICRA Senior Economist Aditi Nayar said.
However, the pressure on prices of onions and fruits declined during July. While inflation in fruits was negative at (-) 0.15 percent, for onion it was (-) 9.81 percent.
Among the non-food articles, inflation in fibres was high at 5.89 percent, oilseeds at 25.22 percent and minerals at 8.43 percent.
High inflation has forced RBI to keep interest rates unchanged in its last two monetary policy reviews, even as economic growth slowed to a nine-year low of 5.3 percent in the January-March quarter. Inflation along with weak demand in the western markets have also affected the country's exports.
Hit by demand slowdown in western economies, exports in July contracted 14.8 percent to USD 22.4 billion.
India Inc stepped up its demand for a rate cut with the recent decline in inflation. "The RBI should immediately look at bringing down interest rates as inflation has been declining in the last two months. The time now is to pep up investments and simultaneously address supply side constraints," Ficci President R V Kanoria said.