Retail Inflation Drops to 3.54% in July, Lowest in Five Years

Retail Inflation Drops to 3.54% in July, Lowest in Five Years

In July 2024, retail inflation fell to 3.54%, down from July’s upward revision—a dramatic turnaround from the previous month. The decline has sent retail inflation well below the Reserve Bank of India’s (RBI) medium-target of 4%, hitting levels it recorded five years ago.

The year-on-year inflation rate based on the All India Consumer Price Index in July 2024 has shown sharp decline, being the least in the last 59 months according to data released by the central government.

This drop came after it overshot the 5%-year-on-year high recorded in June 2024. One of the main reasons behind the drastic fall in July was sharp fall in food inflation to its lowest level since June 2023.

Inflation eased across all food groups during the month as notable reductions were experienced in the prices of vegetables, fruits, and spices.

The government also said that, provisionally, July 2024 recorded a year-on-year rate of inflation, based on the All-India Consumer Food Price Index (CFPI), at 5.42%. In rural areas it was 5.89%, and in urban areas, it was 4.63%. “According to Upasna Bhardwaj, chief economist of Kotak Mahindra Bank, CPI inflation came out higher than our expectations, but was broadly comfortable, though most likely lower than the estimates inferred from the RBI’s upward revised 2Q figures. We keep up that RBI will be on a state-quo mode on rates for the October policy with a likely shift in stance subsequently. That makes room for a shallow rate-easing cycle as early as December, though much will depend on data, both in India and in the US.

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This development is going to favorably influence the stock market and bring a sense of relief into it due to prevailing tension over increasing inflation. Besides, it also brings respite for the Reserve Bank of India, which less than a week ago held key rates unchanged, reiterating its focus on targeting inflation.