CPI reverses three-month downtrend
Inflation based on the consumer price index (CPI) spurted to 2.4% in July, reversing a three-month downtrend that had pushed it down to 1.5% in June. The pickup was led by a much slower decline in food inflation, besides a pickup in items such as housing and pan, tobacco and intoxicants, where higher Goods and Services Tax (GST) rates are likely to have pushed up prices.
The recent dip in inflation was accentuated by a demonetisation-led crimp in demand and seasonal downside pressures on food, most of which are temporary and will soon fade.
The months ahead could see some bump-up in prices at the retail level as producers scamper to price their products and services in line with GST rates. Meanwhile, some food items will also see their low-base effect wear off.
However, beyond this noise, a number of factors will act as curbs on inflation. These include: (i) a normal monsoon, which will keep food inflation in control; (ii) benign global oil and commodity prices, which along with a strong rupee, will keep imported inflation in check; and (iii) only a moderate pick-up in domestic demand, which will keep the pressure on core inflation muted.