Retail price inflation returns to double digits

Justifying the Reserve Bank of India’s cautious monetary stance, consumer price inflation again entered double digits after a gap of two months. It rose to 10.03 per cent in August from 9.86 per cent in July, as the rate of price rise in food articles escalated to 12.03 per cent, from 11.53 per cent the previous month.

Price pressures were felt more on urban areas, where inflation was 10.19 per cent, compared to 9.9 per cent in rural areas. However, milk and vegetable inflation was higher in rural areas.

The pressure on food articles will only rise from here, due to the steep Rs 5 per litre increase in diesel announced last week. This will be captured partially in the September inflation number and the full impact seen in the October figures.

C Rangarajan, chairman, Prime Minister’s Economic Advisory Council, said the diesel price rise could stoke inflation in the short term. Experts believe the government decision on fuel, including the cap on cooking gas subsidy, would raise inflation by 1.3-1.5 percentage points.

Inflation in vegetables came down to 20.79 per cent in August from 27.33 per cent in July. However, the rate of price rise in pulses went up to 16.04 per cent from 12.49 per cent in the previous month.

Fuel and light inflation stood at 7.55 per cent in August, up from 7.36 per cent in July.

Yesterday, RBI had left the repo rate, at which it lends to banks, unchanged at eight per cent but cut banks’ Cash Reserve Ratio, the proportion of their deposits they must keep with the central bank, by 25 basis points to 4.5 per cent. The latter step is expected to infuse Rs 17,000 crore in the market.

In its policy review yesterday, when the data till only July was available, RBI had said consumer price index (CPI) inflation had remained broadly unchanged in July from June, at close to 10 per cent, held up by rising prices of food items. Notwithstanding some easing in July, core CPI inflation (excluding the food and fuel sub-group) remained elevated.

On the outlook for the monetary policy review next month, Rangarajan said, “What RBI will look at, in my view, is the behaviour of inflation, excluding the direct impact of the increase in diesel prices and see whether there is a momentum towards lower inflation. It is on this basis that monetary policy will be determined."