rbi may increase policy rate for retail inflation to 7 per cent in august

New Delhi, Sep 12 (PTI) Retail inflation rose to 7 per cent in August due to increase in prices of food items like vegetables and spices. With this, the slowdown in retail inflation for the last three months has come to an end. This information was obtained from government data released on Monday.

A month ago, consumer price index (CPI)-based inflation stood at 6.71 per cent in July and 5.3 per cent in August last year.

With the rise in inflation, the Reserve Bank of India may again raise the policy rate in the monetary policy review to be presented this month.

Inflation based on the Consumer Price Index has remained above the satisfactory level of the reserve for the eighth consecutive month. The RBI primarily takes into account inflation based on the Consumer Price Index while considering monetary policy.

According to the National Statistical Office (NSO) data, inflation in food articles stood at 7.62 per cent in August as against 6.69 per cent in July. In August last year, it was 3.11 percent.

Vegetables, condiments, footwear (shoes and slippers) and fuel and lighting categories have seen prices increase by more than 10 per cent year-on-year.

However, inflation declined in case of eggs while prices of protein foods such as meat and fish remained stable.

Inflation had touched 7.79 per cent in April this year. It had come down to 7.04 per cent in May and 7.01 per cent in June. In July, it had come down to 6.71 per cent.

The government has entrusted the RBI with the responsibility of keeping retail inflation at 4 per cent with a variation of 2 per cent.

The meeting of the Monetary Policy Committee (MPC) headed by the Governor of the Reserve Bank is to be held on September 28-30. The policy rate has been increased by 1.40 percent for three consecutive times.

Aditi Nair, Chief Economist, ICRA, said the rise in retail inflation on a monthly basis is mainly due to the rise in food prices. Inflation of food items like cereals, pulses, milk, fruits, vegetables and ready meals and ‘snack’ has increased.

“We estimate that the MPC will increase by 0.5 per cent in the September 2022 monetary policy review. This is because of core inflation rising again to 7 per cent in August.

Mridul Sagar, former executive director of RBI and member of the monetary policy committee, said inflation continues to remain above the satisfactory level. But it is expected to come down from October.

“With some further increase in the policy rate, the problem of real negative interest rate on deposits can be solved. On a comparative basis, the impact of the policy rate hike and the improvement in the supply system, the inflation rate is expected to come down from October.

The NSO said the price figures were taken from 1,114 urban markets, 1,181 villages. It includes all the states and union territories.

As per the data, retail inflation in rural and urban areas stood at 7.15 per cent and 6.72 per cent, respectively.

Inflation remained above 8 per cent in West Bengal, Gujarat and Telangana.