July retail inflation highest in 19 months

CPI-based inflation in July stood at 6.1%, compared with 5.8% in June and 3.7% in July last year

The country's retail inflation for July was the highest in 19 months, with rises sustained in vegetables and pulses.

It highlited the uphill task the new Monetary Policy Committee (MPC) and the Reserve Bank of India (RBI) will be faced with to meet a long-term annual inflation target of around four per cent.

Consumer Price Index (CPI)-based inflation last month was 6.07 per cent, compared with 5.77 per cent in June and 3.69 per cent in July last year.

Retail food inflation was 8.35 per cent for July, compared with 7.79 per cent in June and 2.15 per cent in July last year.

It is the first time since the new series of CPI inflation was brought in that the headline number breached six per cent. Prices of pulses and allied products continued their high inflationary trend and rose 27.5 per cent year-over-year in July, with rural prices rising as much as 28.4 per cent. Vegetable prices rose 14 per cent.

“These inflation numbers should get moderated only after the new crop starts coming in. Any RBI action will be contingent on this number moving down, which is expected in the third quarter (October-December),” said Madan Sabnavis, chief economist with CARE Ratings.

“Higher global food prices and the anticipated improvement in domestic demand after implementation of the pay commission's recommendations pose modest risks to the inflation trajectory,” said Aditi Nayar, senior economist with ratings agency ICRA.

The government earlier this month announced an inflation target of four per cent, plus or minus two per cent.

The MPC, to be set up soon, will have to adhere to the target till end-March or the central bank will have explaining to do.

Once the MPC is set up, it will set the policy interest (repo) rate, with the objective of keeping inflation in this range.

The RBI Act has been amended to state the primary objective of monetary policy is to maintain price stability, while keeping in mind the objective of growth.

The MPC will have six members — the RBI governor, a deputy governor and a central bank officer, and three nominees of the Centre. The RBI governor will have a casting vote but no veto.