Kharif Crops May Ease Food Prices But Inflation To Remain High: Economists

Consumer inflation in the country came in at 6.93 per cent in July, government data showed on Thursday, much worse than economists' estimates and the highest since 7.59 per cent in January. The overall retail inflation reading of the Consumer Price Index - which tracks changes in retail prices of a basket of commodities - stayed outside the Reserve Bank of India's comfort zone, which is a 2 per cent range from 4 per cent, for a fourth month running. Elevated prices of food items amid supply-side disruptions emanating from the coronavirus pandemic-related restrictions continued to fuel inflation, say economists.

According to a poll of more than 45 economists conducted by news agency Reuters between August 6 and August 10, consumer inflation was expected at 6.15 per cent last month. Retail inflation had stood at 6.09 per cent in June.

The government had earlier suspended the release of headline inflation numbers for April and May due to inadequate data collection owing to restrictions imposed to curb the spread of the coronavirus pandemic.

A spike in vegetable prices last month mainly pushed food inflation, which accelerated to 9.62 per cent, compared to 8.72 per cent in June.

Analysts say the latest consumer inflation reading is not likely to change the direction of policy, but may delay further monetary easing.

Credit ratings agency CARE expects consumer inflation to remain at high levels over the next few months, with some moderation, due to increasing COVID-19 cases in the country and localised lockdowns,

"Supply disruptions in food components will keep food prices at elevated levels. However, the release of kharif crops into the markets could ease food inflation to some extent," CARE Ratings said in a note.

In its scheduled bi-monthly review this month, the RBI's six-member Monetary Policy Committee decided unanimously to pause the key interest rates citing inflationary concerns and high uncertainty.