Food price surge expected to drive July inflation to 6.7%: Report

Economists have anticipated a significant surge in retail inflation for the month of July due to soaring food prices, estimating it to reach 6.7%, marking a substantial increase of 190 basis points compared to the previous month's figures.

The forecast, made by Deutsche Bank India economists led by chief economist Kaushik Das, has sparked concerns about the impact on consumers and the broader economy.

The July Consumer Price Index (CPI) is projected to rise to 6.7% on a year-on-year basis, up from 4.8% in June. This surge is predominantly attributed to the exponential rise in food prices, particularly tomatoes, onions, and rice.

The average daily prices of essential food items shot up by 12.3% on-month in July, a stark contrast to the 2.4% increase witnessed in June. Prices of tomatoes experienced an astonishing hike of 236.1%, compared to a mere 38% rise in June, while onion prices rose by 15.8% as opposed to 4.2% in the previous month. Potatoes also saw a notable increase of 9.3% in July, in comparison to a 5.7% rise in June.

The surge in prices for these key vegetables has contributed to an overall increase of 87.1% in July, significantly surpassing the 16% rise seen in June. This has prompted economists to project a headline CPI inflation increase of 2.3% on-month for July, resulting in an overall inflation rate of 6.7%.

The report suggests that this inflationary pressure is likely to persist until at least August. While there is a potential easing of tomato prices in September, concerns remain about other essential items, particularly cereals like rice, which witnessed steep price hikes in August and September of the previous year.

The Reserve Bank of India, in its upcoming monetary policy review on August 10, is expected to maintain its current interest rates unchanged despite this inflationary scenario. This is the fourth consecutive time the bank has decided to leave the rates untouched, with the last rate hike recorded in December 2022.

In light of these projections, consumers and policymakers are advised to brace for potential economic challenges stemming from rising food prices, which could have far-reaching implications on household budgets and overall economic stability.

Also Watch: Retail inflation rises: June CPI higher than estimates, at 4.81% vs 4.31% in May