Inflation Rate Drops to 1.31% as Food Prices Stabilize

In August, India’s wholesale inflation fell to its lowest point in four months, registering at 1.31% on an annual basis. This marks a decrease from 2.04% in July, driven by a significant drop in fuel prices and a moderation in the rise of food prices.

Fuel Prices Turn Negative; Food Inflation Slows

Data from the government revealed that the fuel and power sector experienced deflation, with prices declining by 0.67% in August, compared to a 1.72% rise in July. Food prices, a critical factor in inflation, increased at a slower pace of 3.26% in August, down from 3.55% the previous month. Despite these positive changes, inflation was partly sustained by higher prices in food articles, processed food, textiles, and machinery.

Retail Inflation Rises Marginally

In contrast, India’s retail inflation edged up to 3.65% in August, driven by more expensive vegetables and food items. However, this figure remains below the Reserve Bank of India’s (RBI) target of 4%. The annual inflation rate for Primary Articles of the Wholesale Price Index (WPI) was 2.42%, a decrease from 3.08% in July, while inflation for manufactured products moderated to 1.22%.

Food Inflation Trends

The WPI Food Index dropped from 195.4 in July to 193.2 in August, leading to a reduced annual inflation rate of 3.26%, down from 3.55% the previous month. However, specific food items saw varying trends: onion prices surged by 65.75% in August, a significant increase from 34.12% a year ago, while wholesale vegetable prices fell by 10.01% compared to a 48.44% rise last year. Potato prices saw a dramatic increase of 77.96%, reversing a contraction from the previous year.

Central Bank’s Stance on Inflation

During the August Monetary Policy Committee (MPC) meeting, the RBI maintained its inflation forecast at 4.5% for the fiscal year, despite concerns over rising food prices and geopolitical tensions impacting crude oil prices. The MPC decided to keep interest rates unchanged at 6.5%. According to the RBI’s inflation expectations survey, households anticipate a 20 basis point increase in inflation over the next three months.

The latest data suggests a complex inflation landscape, with fluctuating food prices and stable fuel costs influencing overall trends.