July inflation eases to 8-yr low of 1.55%

New Delhi: Retail inflation eased to an eight-year low of 1.55 per cent in July, falling below the Reserve Bank of India’s lower tolerance band, driven by broad-based decline in food prices, according to official data released on Tuesday.  

The July inflation print is the second-lowest since the current series of the Consumer Price Index (CPI) was introduced in January 2015. The lowest retail inflation under the current CPI series was recorded in June 2017 when it stood at 1.46 per cent.

The headline inflation has slipped below the RBI’s tolerance band of 2 to 6% for the first time in over six years.

Food prices declined on a year-on-year basis while core inflation also eased.

Food inflation, which makes up nearly half of the CPI basket, stood at -1.76 per cent in July, the lowest since January 2019.

The significant decline in headline inflation and food inflation during July is mainly attributed to favourable base effect and to the decline in inflation of pulses, transport and communication, vegetables, cereal, education, egg, sugar and confectionery, the Ministry of Statistics & Programme Implementation said.

Core inflation declined below 4 per cent for the first time in six months. Excluding gold prices, the core inflation decelerated to 2.96 per cent in July, almost 100 basis points lower than the headline core CPI. 

“While the fall in inflation over the past few months has benefited all segments, the lowest ones have gained the most as food prices fell year-on-year,” said Dipti Deshpande, Principal Economist, Crisil.

“Our calculations show that in the rural areas, the lowest income segments saw the inflation rate plunge to 0.8% from 4.0% a year ago, whereas in the urban areas it slid to 1.0% from 2.7%,” Deshpande added.

Analysts expect that the inflation will remain low in the coming months. “The inflation trends are expected to remain benign in the coming months as well amid soft food inflation. Positively, the core inflation softened marginally in July,” said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

“Despite comfortable inflation in the near term, we do not see much room for monetary easing as the medium term inflation trajectory is skewed above 4%,” Bhardwaj said.