CPI inflation seen to have cooled further in August 

Headline retail inflation may have eased further in August with prices of vegetables witnessing further reduction.   Most analysts expect consumer price index (CPI)-based inflation to have eased to between 3.2% and 4% in August. CPI inflation in July had eased to a 59-month low of 3.54% in July this year from 7.44% in July 2023 and 5.08% in June 2024. Consumer food price inflation also cooled to 5.42% in July as against 11.51% a year ago and 9.36% in June 2024. This easing was seen to be partly due to the impact of a higher base in July 2023. Retail inflation in vegetables was at 6.83% in July.   However, analysts believe that prices of vegetables, especially of tomatoes, have eased further in August giving some respite to consumers. The government will release official data on CPI inflation for August 2024 on September 12.   Radhika Rao, Executive Director and Senior Economist, DBS Bank said CPI inflation is likely to have eased to 3.2% in August this year. “High-frequency data for perishables point to a moderation in momentum into August, which together with remnant base effects are likely to keep headline inflation in the lower half of the target band,” she said.   Crisil’s monthly indicator of food plate cost also revealed that in August 2024, costs of both veg and non-veg thalis declined on-year as well as on-month. “On-year, the decline was steeper at 8% and 12% for home-cooked vegetarian and non-vegetarian thalis,” it said in its Roti Rice Report. Prices of tomato, which accounted for nearly 14% of the vegetarian thali cost in August, declined 51% on-year (from Rs 102 per kg in August 2023 to Rs 50 per kg in August 2024) due to fresh arrivals from southern and western states, it noted.   Fuel costs also fell by 27% while prices of vegetable oil, chilli and cumin, which together account for less than 5% of the vegetarian thali cost, eased 6%, 30% and 58% on-year, it said. “The decline in cost was sharper for a non-veg thali due to an estimated 13% on-year drop in prices of broiler, which account for nearly 50% of the cost,” the report said.   It however, highlighted that an on-year uptick of Rs 15 per kg and Rs 13 per kg in onion and potato retail prices, respectively, have taken place due to lower rabi arrivals capped the decline in costs of both vegetarian and non-vegetarian thalis.   A report by the Bank of Baroda also said that inflation is likely to subside, and CPI inflation could be at 4% in August. The BoB Essential Commodity index shows a significant moderation in underlying price pressure. On a year-on-year basis, the index has moderated to 3.1% from 5% in Jul’24. Even on a sequential basis, BoB ECI has declined by 1.1%, after increasing by 2.1% in Jul’24. “This is led by a correction in prices of vegetables, especially tomato. Prices of other essential commodities also moderated sequentially,” it said.   Aditi Gupta, Economist at Bank of Baroda said going ahead, while a normal monsoon bodes well for the inflation outlook, unseasonal and excess rainfall in part of the country remains a key risk. “We expect inflation to evolve broadly in line with RBI expectations, implying the possibility of rate cut only in December 2024,” she said.