Retail inflation in August declines to 6.83% on softening food prices

New Delhi: Retail inflation declined to 6.83 per cent in August after touching a 15-month high of 7.44 per cent in July, mainly due to softening prices of vegetables, but still remains above the Reserve Bank's comfort zone.

The overall inflation in the food basket stood at 9.94 per cent in August as against 11.51 per cent in July, according to data released by the National Statistical Office (NSO) on Tuesday.

Retail inflation based on the Consumer Price Index (CPI) was at 7 per cent in August 2022.

While the retail inflation declined to 6.83 per cent in August, it still remains above the comfort level of the Reserve Bank of India (RBI), which has the mandate to ensure inflation remains at 4 per cent with a margin of 2 per cent on either side.

As per the data, inflation in the vegetable basket eased to 26.14 per cent in August as against 37.4 per cent in July.

The prices of 'oil and fats' products declined to 15.28 per cent in August while there was low inflation in 'meat and fish', 'eggs', 'sugar and confectionary', 'non-alcoholic beverages', 'fruits' and 'prepared meals and snacks' on an annual basis.

The data also showed that inflation in the 'housing' was at 4.38 per cent and 'fuel and light' at 4.31 per cent.

Aditi Nayar, Chief Economist, Head Research & Outreach at rating agency ICRA said that within food items, inflation in vegetables fell to 26.1 per cent in August from 37.4 per cent in the previous month, contributing as much as 28 basis points of the 61 basis points decline in the headline CPI inflation print between these months.

"Core inflation (CPI excluding food and beverages, fuel and light and petrol and diesel) eased marginally to 5.06 per cent in August 2023 from 5.12 per cent in the previous month. This was the third consecutive month of a dip in inflation of this metric," she said.

The RBI has projected the CPI inflation at 5.4 per cent for 2023-24, with an estimate of 6.2 per cent for the second quarter, 5.7 per cent for the third quarter and 5.2 per cent in the fourth quarter, with risks evenly balanced.

The inflation for the first quarter is projected at 5.2 per cent.

Headline inflation had eased to 4.8 per cent in June 2023 from the peak of 7.8 per cent in April 2022. However, it surged to 7.4 per cent in July, mainly on account of a spurt in vegetable prices which have already started moderating.