After five long years, India's retail inflation fell below the Reserve Bank of India’s comfort level of four per cent in July as food inflation eased from previous highs due to a high base effect, government data showed on Monday. The consumer price index-based inflation was 3.65 per cent in July compared to 7.44 per cent in July last year.
While food inflation stood at 5.42 per cent in July 2024, an analysis of commodity-wise numbers show that the prices of several important commodities still remain elevated. Inflation in pulses, which is one of the important source of protein for vegetarians, remained high at nearly 15 per cent, followed by cereals at 8.14 per cent, vegetables 6.83 per cent, eggs 6.76 per cent, meat and fish 5.97 and sugar and confectionery at 5.22 per cent.
In the recent monetary policy meeting, the Reserve Bank of India (RBI) continued the withdrawal of accommodation, which means the rate of interest will remain elevated to keep inflationary expectations in check. Though the decline in the July inflation was due to higher base effect, economists expect that new crops could ease food prices in the coming months. The other components of retail inflation such as betel, tobacco and intoxicants, clothing and footwear, housing, fuel and light and miscellaneous items remained below four per cent.
While food takes away more than 50 per cent of a poor family’s income in India, the percentage of income that a middle class family affected would be around 30 per cent or so, with heads such as education, health, transport and personal care incorporated in the miscellaneous category forming a significant portion of their monthly expenditure.
Recently, there was a proposal in the government to reduce the weightage of food in calculation of retail inflation based on the inputs of the household consumption expenditure survey. The government should complete this process as early as possible to ensure that it is guided by correct data in economic policymaking.
