Retail inflation seen to pick up pace from September, core inflation may rise too

Food price pressures continue to remain a cause of concern and hopes are now pinned on the new crop to cool food inflation. However, retail inflation is likely to pick up once again from September with expectations that core inflation will now start to rise.
 
Retail inflation as measured by the consumer price index in August was at the second-highest level in five years but remained largely flat at 3.65% compared to 3.6% in July. It was higher at 6.83% in August 2023.

Food inflation as measured by the Consumer Food Price Index inched up marginally to 5.66% in August from 5.44% in July. It was at 9.94% in August 2023.
 
The lower inflation in the last two months is seen to be partly due to the impact of a high base effect.
 
Importantly, retail inflation in a number of food products remained above the 6% mark, including vegetables, fruits and eggs that saw higher inflation in August from July. This includes cereals where inflation was 13.6% in August as against 14.77% in July, vegetables which registered 10.71% in August (6.83% in July), cereals with 7.31% inflation in August (8.14% in July), fruits with 6.45% inflation in August (3.84% in July) and eggs with 7.14% inflation in August (6.76%) in July.
 
Core inflation eased to 3.4% in August. Within core inflation the personal care products have witnessed inflation of 7.9% which is due to higher input costs.
 
“While food inflation will smoothen as the kharif crop comes in, we expect core inflation to stiffen as input costs get embedded in prices. This category would move up towards the 4% mark,” said Madan Sabnavis, Chief Economist, Bank of Baroda. He also cautioned that while the monsoon has been good but the risk factor of excess rains affecting crop prospects is something to be monitored.
 
Aditi Nayar, Chief Economist and head of Research and Outreach at ICRA said that with the base effect normalising the agency expects CPI inflation to pick up to about 4.8% in September 2024, and range between 4.4% and 4.7% in the second half of the fiscal year.
 
“Although the core-CPI (CPI excluding F&B, F&L, and petrol and diesel for vehicles) inflation eased slightly to 3.5% in August 2024 from 3.6% in July 2024, this is likely to be an intermittent dip; we expect the core CPI inflation print to inch up through the rest of the fiscal, in spite of the recent moderation in commodity prices, on account of demand for services, as well as the year on year decline in the sowing of cotton,” she said.
 
Rajani Sinha, Chief Economist, CareEdge noted that globally, a recent decrease in crude oil and industrial metal prices has brightened the outlook for CPI inflation. However, she said that looking ahead, the base effect will turn unfavourable in September ahead of an early festive season this time. “For FY25, we expect inflation to average 4.8%,” she said.