Pushed by food prices, retail inflation leaps to 7.4%, a 15-month high
Retail inflation: Prices of cereals and vegetables have continued to grow in double digits despite a raft of measures by the government to ease supplies
NEW DELHI: Retail inflation in July jumped the highest in 15 months to stand at 7.44% from a year ago, breaching the Reserve Bank of India’s tolerable limit of 4% on the back of runaway grocery and food prices, official data released on Monday showed.
Prices of cereals and vegetables continued to grow in double digits despite a raft of measures by the government to ease supplies. Heavy rain and a volatile monsoon is a key reason why food inflation continued to accelerate. Cereals climbed 13%, while vegetable prices shot up 37.34%, driving the combined food price inflation rate to 11.51% in July.
The government banned the export of wheat in May 2022 and that of rice last month to boost domestic supplies. Last week, the government also announced releasing 7.5 million tonnes of grains into the open market, but these steps haven’t reigned in high cereal inflation that have pinched household budgets.
Overall, price growth was marginally higher in rural areas at 7.63% compared to an urban inflation rate of 7.20%.
In its monetary policy meeting on August 10, the central bank did not hike interest rates even though it warned that a spike in vegetable prices would lead to a large spike in retail inflation.
In June too, average retail inflation rose by an annualized 4.81%, which was a three-month high, against an increase of 4.31% in May.
Lower interest rates make for easy borrowing and businesses typically borrow to invest in new economic activities. Therefore, more cash supply increases inflation because more money chases fewer goods. Money supply can be increased overnight, but not purchasable goods, which need considerable time to produce.
On the other hand, at times of high inflation, central banks typically increase interest rates to shrink the money supply and cool inflation.
