Retail inflation eases to 3.54% in July, lowest in nearly 5 years; here is what latest reading means for consumers

Consumer Inflation (CPI) Data: Consumer inflation - or the rate of increase in the retail prices of a basket of goods and services - stood at 3.54 per cent in July, sharply lower than 5.08 per cent in the previous month, and far better than 7.44 per cent recorded in July 2023, according to official data released on Monday. That marked the lowest level of retail inflation recorded in 59 months, according to an official statement.

"There is (a) sharp decline in the year-on-year inflation rate based on All India Consumer Price Index (CPI) number for the month of July, 2024, which is the lowest in the last 59 months... (The) year-on-year inflation rate based on All India Consumer Price Index (CPI) number is 3.54 per cent (Provisional) for the month of July, 2024. The corresponding inflation rate for rural and urban is 4.10 per cent and 2.98 per cent, respectively," according to the Ministry of Statistics & Programme Implementation. 

The latest data comes days after the central bank maintained a status quo on the repo rate - or the key interest rate at which it lends short-term funds to commercial banks - as well as its policy stance.

The latest monthly reading marked retail inflation - or consumer inflation - being below the Reserve Bank of India's medium-term goal of 4.0 per cent. 

Food inflation also eased, to 5.42 per cent last month from 9.36 per cent in June, according to the ministry.   

Consumer inflation in the country is measured by the Consumer Price Index (CPI) while food inflation is gauged by the CPI (Food) index.  

What economists say

Most economists said that the improvement in the overall CPI reading is primarily on account of subdued food prices and a higher base.

The July CPI inflation reading is better than expectations of 3.70 per cent, according to Murthy Nagarajan, Head-Fixed Income at Tata Asset Management.

"This is due to vegetable inflation falling and high base effect as last year CPI inflation was above 7.0 per cent level. Core inflation is at 3.4 per cent versus expectations of 3.35 per cent. There were fears of CPI inflation coming higher as the RBI has revised its 2nd-quarter CPI inflation forecast from 3.8 per cent to 4.4 per cent percent in its latest monetary policy. This will be taken as positive by the markets but we also have the US CPI data coming in the next 2 days. This data may continue the positive momentum in the debt market," he said. 

What does the lower inflation reading imply?

A lower reading generally means that the prices of goods and services are rising at a slower rate than before. An overall lower reading is generally beneficial for consumers, making it easier to manage finances and maintain or improve their standard of living.

Where does RBI see inflation in the coming months?

The RBI has pegged consumer inflation at 4.5 per cent for the current financial year, which ends on March 31, 2025.

The RBI's interest rate-deciding panel is set to meet next from October 7 to 9, 2024.

Minutes of the August bi-monthly review of the RBI's Monetary Policy Committee will be released on August 22.