July CPI inflation hits 8-yr low of 1.55%

Fall was driven by food inflation which has been contracting for the past 2 months

- Roshan Kishore

India’s benchmark inflation fell to 1.55% in July, the second lowest monthly inflation in the current series on the back of a contraction in food prices.

The latest inflation numbers vindicate the Reserve Bank of India’s downward revision of its annual inflation forecast from 3.7% to 3.1% in the Monetary Policy Committee (MPC) meeting held earlier this month but also underline its concerns about the benign inflation environment being driven by food prices. Indeed, while the food part of the CPI basket contracted by 1.8% in July, its nonfood component saw an annual growth of 3.9%.

With the inflation numbers turning out to be low as RBI expected them to, the policy focus will now shift to June quarter growth numbers which will be released at the end of this month. To be sure, growth headwinds are likely to have strengthened more recently in the wake of the US putting a tariff of 50% (including a 25% penalty unfairly singling out India for Russian oil imports) earlier this month. Experts believe that the RBI is likely to monitor incoming growth data and the outcome of ongoing trade negotiations to decide its policy course.