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India#39;s retail inflation eases marginally to 3.15% in July

August 13
19:29 2019

India’s retail inflation rate in July grew 3.15 percent, remaining comfortably within Reserve Bank of India’s (RBI) target level of 4 percent, latest price data released by the Central Statistics Office (CSO) on August 13 showed.

Retail inflation for June came in at an eight-month high of 3.18 percent.

Food prices, which is a gauge to measure changes in kitchen budgets, stood at 2.33 percent in July compared to 2.37 percent in June. Inflation rate in cereals and products saw no change and stood at 1.3 percent. Vegetables inflation stood at 2.82 percent in July versus 4.66 percent in June.

The Consumer Price Index (CPI)-based retail inflation data captures changes in shop-end prices and is the main metric that RBI tracks to decide on interest rates.

The RBI on August 7 cut the repo rate—its key lending rate—by 35 basis points to 5.40 percent and kept the door open for lowering rates further by retaining an “accommodative” policy stance, but flagged worries over weakening growth prospects.

This was the fourth repo rate cut in as many policies since February 2019.

The RBI expects the inflation genie to remain firmly bottled up, and well within the central bank’s comfortable 4 percent range. The RBI has projected retail inflation to be at at 3.1 percent during July-September 2019 and at 3.5-3.7 percent during October-March 2019-20. CPI inflation for April-June 2020 is projected at 3.6 percent.

There were, however, worry lines emerging on the broader economy’s growth prospects, punched by sluggish consumption and investment activity.

RBI now expects India’s real or inflation-adjusted gross domestic product (GDP) to grow at 6.9 percent in 2019-20, lower than 7 percent it had projected in June.

Muted household spending as reflected in metrics such as falling car sales have resulted in a pile up of unsold inventories and rising unused capacities in factory plants mirror slackening demand and feeble investment.

Automobile show rooms have not been reporting brisk activity, implying lower spending ability and flat income growth.

It has been widely reported that automakers like Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Ashok Leyland and Honda Motorcycle & Scooter India have temporarily closed plants in the past few months. Initial reports for July suggest that the passenger car sales have slipped by over 29 percent.

Tractor and motorcycle sales – indicators of rural demand – continued to contract. Passenger vehicle sales contracted for the eighth consecutive month in June, although domestic air passenger traffic growth turned positive in June after falling for three consecutive months.

Commercial vehicle sales slowed down even after adjusting for base effects, mirroring how stocks aren’t moving rapidly across the country to fill shop shelves beaten by low demand. Construction activity indicators slackened, with contraction in cement production and slower growth in finished steel consumption in June. Import of capital goods – a key indicator of investment activity– contracted in June.Subscribe to Moneycontrol Pro and gain access to curated markets data, trading recommendations, equity analysis, investment ideas, insights from market gurus and much more. Get Moneycontrol PRO for 1 year at price of 3 months at 289. Use code FREEDOM.

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