Cooling core inflation fails to cheer amid supply flux

Inflation, without accounting for food and energy prices, known as core inflation, stood at 4.9% in July, as against 5.1% in June and economists believe it will remain sticky in the coming months.

- Shayan Ghosh

A declining core inflation, amid a 15-month high retail inflation, gives no reprieve to the Reserve Bank of India (RBI), which recently called for supply-side interventions to cushion food price shocks.

Inflation, without accounting for food and energy prices, known as core inflation, stood at 4.9% in July, as against 5.1% in June. Economists believe it will remain sticky in the coming months. They said that while a decline in core inflation is positive, high headline numbers have anyway dashed rate cut hopes in FY24.

Headline consumer price index (CPI) inflation rose to 7.4% in July, from 4.8% in June as against a Bloomberg consensus of 6.5%. This was higher than RBI’s flexible tolerance band of 2-6%, a range retail inflation breached after a gap of five months.

“We think core inflation is likely to remain sticky at around 5% in the near term, as demand remains resilient," Barclays said on Monday.

Barclays raised its FY24 inflation forecast again to 5.4%, from 5% earlier, taking into account higher-than-expected July CPI and likely elevated August numbers.