Retail inflation hits 23-month high at 6.1% in July

The Dollar Business Bureau 

Inflation based on Consumer Price Index (CPI) has escalated for the fourth month in a row to 6.1% in July, 2016 which is a 23-month high. This is mainly due to the growing food inflation at 8.4% while core inflation remained at 5.1% during last month. 

According to Crisil Research, an increase in CPI inflation is transitory. Normal monsoon and proactive steps taken by the government to manage food supply will rein in food inflation this fiscal. It will take one or two months for the benefit of the rains to wash away the rise in food prices. 

After the Reserve Bank kept its policy rate unchanged this month, Crisil expects a rate cut in October at least with more clarity on the monsoons and inflation trajectory. The rating agency expects the average CPI to remain around 5% this fiscal due to good monsoon. The lower food inflation will counterbalance higher services inflation. 

Another credit rating agency ICRA said that CPI inflation in July 2016 was slightly higher than its expectation, with a sharp rise in food inflation. Although CPI inflation has surpassed the higher threshold of 2-6% inflation target, the outcome in the last month may well emerge as the last of the upsetting outcomes. 

A favourable monsoon and kharif sowing signal an ease in food inflation in the next few months. Higher global food prices and the anticipated improvement in domestic demand after the implementation of the pay commission's recommendations pose modest risks to the inflation trajectory, ICRA said. 

The agency expects CPI inflation to trend downwards in the next few months in the 4.5%-5.5% range in the coming months this year.