Apr 3, 2023 | 2022(August), Blog
India’s inflation measured via the consumer price index (CPI) rose to 7% in August compared to 6.71% seen in July. The uptick was mainly led by a seasonal rise in food inflation, which accounts for nearly half of the CPI basket.
Food inflation, have soared as prices of essential crops like wheat, rice and pulses were driven higher by a record heatwave, squeezing household budgets. The RBI’s own projections showed inflation staying above the 6% top end of its target range until early 2023. This is the eight successive month that the retail inflation has been above the RBI target of 6%. Furthermore, CPI inflation has been 7% and above in five of the last six months.
The Finance Ministry on Monday said that the rise in retail inflation in August was due to an adverse base effect and an increase in food and fuel prices. The finance ministry said that the core inflation calculated by excluding food and fuel was recorded at 5.9 percent in August 2022, remaining below the tolerance limit of 6 percent for the fourth consecutive month. It further said that prices of major inputs like iron ore and steel have softened in the global markets.
The RBI is using billions of dollars a month of currency reserves to defend the weak rupee, which has been trading near record lows of around 80 per dollar for several months. RBI is expected to continue to be vigilant on this front and proceed with the cycle of interest rate hikes. It is expected that the RBI will undertake additional rate increase of 50bps in CY2022 that would take the repo rate closer to 6%.