Rising food prices may push July inflation up by 190 bps to 6.7%: Report

Citing the sharp rise in food prices, economists at a foreign bank have forecast a steeply higher retail inflation print for July, pegging it at 6.7 per cent


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Press Trust of India Mumbai

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Citing the sharp rise in food prices, economists at a foreign bank have forecast a steeply higher retail inflation print for July, pegging it at 6.7 per cent, up 190 basis points from the previous month.
Deutsche Bank India economists led by chief economist Kaushik Das, in a report on Monday ahead of the monthly inflation print and the Reserve Bank's monetary policy review, said that the July consumer price-based inflation index (CPI) is likely to print at 6.7 per cent on-year as against 4.8 per cent in June.
The Reserve Bank is widely believed to leave the key interest rates unchanged for the fourth time in its upcoming bi-monthly monetary policy decision on August 10.
The last repo rate hike was in December 2022, when the central bank raised the rate by a quarter percentage point, taking it to a near decadal high of 6.50 per cent.
The massive spike seen is due to food prices, led by tomatoes and onions and also rice shooting over the roof in July with daily prices of 22 essential food items going up 12.3 per cent on-month on an average as against 2.4 per cent rise in June.
Among key vegetables, prices of tomatoes went up 236.1 per cent in June against 38 per cent hike witnessed in June, while rate of onions rose 15.8 per cent compared to 4.2 per cent increase in the preceding month and potato price climbed by 9.3 per cent in July against a 5.7 per cent hike in June.
Overall, prices of tomatoes, onions and potatoes have increased 87.1 per cent in July as against 16 per cent rise in June.
"Given these factors we see headline CPI inflation increasing 2.3 per cent on-month in July versus 1 per cent on-month in June to 6.7 per cent in July," they said.
Factoring in all the idiosyncrasies related to food inflation, the economists have also revised up July-September CPI forecast to 5.8 per cent average (from 5.2 per cent earlier), but also lowered the Q3 and Q4 FY24 forecasts to 5.3 per cent and 5.2 per cent average, respectively from 5.6 per cent and 5.4 per cent earlier, resulting in an unchanged CPI forecast of 5.2 per cent for FY24.
The RBI's current inflation forecast is 5.2 per cent for Q2, 5.4 per cent for Q3 and 5.2 per cent for Q4.
The RBI will have to revise up its CPI forecast for Q2, which will probably result in the FY24 full-year forecast rising slightly to 5.2 per cent from the current forecast of 5.1 per cent, the report said.
The price pressure, however, should sequentially come down from August, but the bigger disinflation in vegetable prices will probably be seen from September. Consequently, retail inflation may stay around 6 per cent in August as well, after which it may moderate to 4.8 per cent in September on the back of falling vegetable prices, particularly those of tomatoes, the report said.
While tomato prices, which have crossed Rs 300 a kg in Delhi despite the government selling it at subsidised rates, will likely ease meaningfully only from September, but then there is a risk of cereals going up, particularly rice, which hopefully will not rise as much as it did in August and September of 2022.
"Based on our current forecasts, we expect CPI inflation to average around 5.8 per cent in July-September of this year," the report said.
However, the report noted that the silver linining is in core CPI, which is likely to print in lower at 5 per cent in July.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Aug 07 2023 | 11:14 PM IST

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