Retail inflation in India surged to a 15-month high of 7.4% in July, raising concerns about the economic impact of...
Digital Desk: Retail inflation in India surged to a 15-month
high of 7.4% in July, raising concerns about the economic impact of escalating
consumer prices. A recently published report by the finance ministry indicates
that the inflationary trend could persist over the next few months due to a combination
of global disruptions and domestic factors.
In its July Monthly Economic Review report, the Department of Economic Affairs underscored the re-emergence of inflationary pressures. These pressures, it stated, have been fueled primarily by disruptions in the global supply chain, alongside domestic issues. The report urged both the government and the Reserve Bank of India (RBI) to exercise increased vigilance in response to these evolving trends.
The report outlined, "While domestic consumption and investment demand are projected to continue propelling growth, the persistence of global and regional uncertainties, along with domestic disruptions, might keep inflationary pressures elevated in the forthcoming months. This warrants a heightened vigilance on the part of the Government and the RBI."
The recent deficiency in monsoon rains during August has also been noted, which can potentially affect agricultural output and contribute to inflationary pressures. To counteract this, the government has already taken preemptive measures to control food inflation. The report emphasized the expectation that these measures, combined with the arrival of fresh produce, could alleviate price pressures in the market soon.
Furthermore, the finance ministry report stressed the need for close monitoring of the external sector to bolster merchandise export growth in the face of slowing global demand.
Anticipated Cool Down in Food Inflation
Despite the projection of sustained elevated inflation, the report highlighted that the "uneasiness in food inflation is likely to subside." It pointed out that disruptions in global supply chains had led to increased inflation in India, with specific food commodities, including cereals, pulses, and vegetables, being the primary drivers of this inflation spike. Notably, all these categories experienced double-digit growth in July compared to the same period the previous year.
The report cited domestic production disruptions as exacerbating inflationary pressures. The supply chain for tomatoes was interrupted due to the white fly disease outbreak in Kolar district, Karnataka, while the swift arrival of monsoons in northern India caused a surge in tomato prices. The price of tur dal was also inflated due to deficient production in the Kharif season of FY23.
While the report acknowledged that the food inflation recorded in July was among the highest since the introduction of the new Consumer Price Index (CPI) series in 2014, it highlighted that only 48% of food items experienced inflation above 6%.
Temporary Inflationary Trends
Certain food items, such as tomatoes, green chilies, ginger, and garlic, saw inflation rates exceeding 50%. The report clarified that the sharp increases in prices for these specific items were responsible for the high food inflation observed in July 2023. However, the report provided reassurance that the price surge for these items is anticipated to be transitory.
The report projected that the price of tomatoes is likely to decline with the arrival of fresh stocks by the end of August or early September. Moreover, increased imports of tur dal are expected to temper pulses inflation. Alongside these factors, recent governmental efforts are expected to contribute to a moderation in food inflation in the coming months.
While inflation concerns persist, the report's analyses and
predictions provide a glimmer of hope that the current bout of inflation may
eventually stabilize through a combination of domestic interventions and natural
market forces. As the government and RBI maintain a watchful eye on these
trends, the nation awaits the effects of these strategies on its economic
landscape.
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