Retail Inflation in India: Challenges and Solutions

• Retail inflation data from the National Statistical Office shows a challenge in achieving durable price stability.
• The headline rate based on the Consumer Price Index (CPI) increased to 3.65% in August, from 3.60% in July.
• A sharp rebound in vegetable inflation led to a wider acceleration in overall food price gains.
• Price gains in vegetables surged by over 380 basis points to 10.7%, spurring food price inflation to 5.66%.
• Potato and onion inflation remained in high double digits for a sixth and 13th month at 64% and 54%, respectively.
• Pulses and cereals prices remained slow, with year-on-year price gains in the former still in double digits for a 15th straight month at 13.6%.
• Food inflation in rural areas rebounded to exceed 6%, affecting private consumption and growth.
• A durable disinflation to the RBI’s medium-term monetary policy goal of 4% headline retail inflation faces other challenges, including a resurgence in core inflation.
• The spatial and temporal volatility of the monsoon further complicates the outlook for price stability. RBI Governor Shaktikanta Das acknowledges the last mile of disinflation is proving to be “challenging”.