Experts Discuss India’s Inflation Drop and Future Challenges
India’s Consumer Price Index (CPI) inflation eased significantly to 3.54% in July 2024, marking its lowest level in nearly five years and a sharp drop from 5.08% in June. This decline brought inflation below the Reserve Bank of India’s (RBI) medium-term target of 4% for the first time since 2019.
Key Factors Behind the Decline
The primary driver behind this sharp moderation was the steep fall in vegetable inflation, which plummeted from 29.3% in June to 6.8% in July. The Consumer Food Price Index (CFPI) also saw a significant reduction, falling from 9.36% in June to 5.42% in July, contributing to the overall easing of CPI inflation.
Expert Opinions
Rajani Sinha, Chief Economist at CareEdge, noted, “Despite the moderation in the inflation of the food and beverage basket when compared to last year, the sequential momentum remains strong, with a 2.5% month-on-month increase in prices, higher than an average sequential growth.”
Dharmakirti Joshi, Chief Economist at CRISIL, highlighted the impact of the high-base effect, stating, “While the high-base effect — along with sequential monthly movements — was supportive of food inflation, it had an adverse bearing on core inflation. The big worry now is food prices continue to be elevated with the on-month rise slightly higher than usual for July.”
Raghvendra Nath, Managing Director of Ladderup Wealth Management, expressed optimism regarding the CPI data, stating, “This decline is primarily attributed to a reduction in the Consumer Food Price Index, which fell from 9.36% in June to 5.42% in July. This improvement should offer reassurance to the Reserve Bank of India (RBI), which has indicated that rate cuts will occur only when inflation sustainably aligns with its 4% target.”
Sanjeev Agrawal, President of the PHD Chamber of Commerce and Industry, also commended the decline in CPI inflation, stating, “It is highly appreciable that the CPI inflation has exhibited a decline in the year-on-year inflation rate at 3.5% for the month of July 2024 from 5.08% in June 2024.”
Future Challenges
Experts caution that the road ahead could be bumpy. The sequential momentum in food prices remains strong, with a 2.5% month-on-month increase in prices, higher than the average sequential growth, indicating that inflationary pressures may persist. The uneven distribution of monsoon rainfall and the potential for excess rainfall in the coming months pose additional risks to food prices. Additionally, any substantial rise in crude oil prices due to the ongoing geopolitical crisis could adversely affect inflation and the broader economy.
Doubts Revealed
Inflation -: Inflation is when the prices of things we buy, like food and clothes, go up over time. It means you need more money to buy the same things.
Consumer Price Index (CPI) -: The Consumer Price Index (CPI) is a way to measure how much prices for everyday items like food and clothes have changed over time. It’s like a report card for the cost of living.
Rajani Sinha -: Rajani Sinha is an expert who studies the economy. She helps people understand why prices go up or down and what might happen in the future.
Dharmakirti Joshi -: Dharmakirti Joshi is another expert who looks at the economy. He also helps explain why things like food prices change and what might happen next.
Monsoon -: Monsoon is the rainy season in India. It usually happens from June to September and is very important for farming because it provides water for crops.
Geopolitical issues -: Geopolitical issues are problems between countries that can affect things like trade and prices. For example, if two countries don’t get along, it might make oil more expensive.
Crude oil prices -: Crude oil is the raw form of oil that comes from the ground. Its price can change a lot and affect how much we pay for things like petrol and diesel.
Reserve Bank of India -: The Reserve Bank of India (RBI) is like the country’s main bank. It helps control money and interest rates to keep the economy stable.
Rate cuts -: Rate cuts mean lowering the interest rates. When the RBI cuts rates, it can make borrowing money cheaper, which can help people and businesses spend more.
