13th August 2024 (11 Topics)
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India’s Retail Inflation
Context
India's retail inflation has recently hit a 59-month low of 3.54% in July 2024. This significant decrease comes after a high inflation rate of 7.44% in July 2023. The decline in inflation is largely attributed to a high base effect from the previous year, which has also led to a drop in food inflation.
Key Factors Influencing Inflation:
- High Base Effect: The significant drop in inflation is partly due to comparing current prices with a high price level from last year.
- Core Inflation: This, which excludes volatile items like food and fuel, rose to 3.4% in July due to higher gold prices and telecom tariff increases.
Future Projections:
- Short-Term: Inflation for August is expected to remain around 3.5%, but may rise afterwards.
- Food Prices: Key issues remain high inflation in cereals and pulses, with prices for these items well above 6% for over a year.
- RBI’s Outlook: The Reserve Bank of India (RBI) expects inflation to average 4.4% for Q2FY24, but actual rates may be closer to the previous forecast of 3.8%. Inflation in the second half of the year might be below the central bank’s forecast of 4.5%.
- Monetary Policy: Despite the lower inflation, the RBI's current interest rate (repo rate) is 6.5%. Rate cuts are not expected soon due to strong economic growth.
Key Concepts and Terms
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