CPI inflation easing gradually

Inflation, as measured by the Consumer Price Index (CPI), declined to 6.7% on-year in July from 7.0% previous month. Food drove the moderation in inflation, while non-food inflation rose. Headline inflation remains above 6%, the upper limit of the RBI’s target range, for the seventh month in a row.

CPI inflation is gradually easing, helped by the dissipating impact of heatwave, softening global prices, and government interventions on certain items. Progress of monsoon and its impact on food production will shape the inflation trajectory in the second half. Pressure will remain from producers, increasing the passthrough of costs to consumer prices. With the revival in contact-based services, the pressure on services inflation will continue. Due to these factors, we expect CPI inflation to average 6.8% this fiscal, up from 5.5% in the previous year.

Inflation trends in July: highlights

• CPI inflation eased to 6.7% on-year in July from 7.0% previous month, but was higher than 5.6% a year ago
• Food inflation fell to 6.8% from 7.7% previous month, but was higher than 4.0% a year ago
• Fuel¹ inflation rose to 11.8% from 10.1% in the previous month, but was lower than 12.4% a year ago
• Core CPI² inflation remained sticky, at 6.0% in July compared with 6.0% in June and 5.8% a year ago
• Within core inflation, excluding transportation, both goods and services saw rising inflation
• Inflation eased in both rural (6.8% in July versus 7.1% previous month) and urban areas (6.5% vs 6.9%)

¹ Refers to CPI fuel and light
² CPI excluding food and beverages and fuel and light