Retail inflation declined to a five-year low of 3.54 per cent in July mainly on account of subdued prices of food items, and base effect, according to official data released on Monday.
The Consumer Price Index (CPI) based retail inflation was 5.08 per cent in June 2024 and 7.44 per cent in July 2023.
Retail inflation slipped below the median target of 4 per cent of the Reserve Bank for the first time since September 2019 when it was at 3.99 per cent.
The government has tasked the RBI to ensure inflation remains at 4 per cent with a margin of 2 per cent on either side. Inflation has remained below 6 per cent since September 2023.
According to the data released by the National Statistical Office (NSO), the annual inflation in 'milk and milk products' was 2.99 per cent, 'oils and fats' (-) 1.17, fruits 3.84 per cent, and spices (-) 1.43 per cent.
The rate of price rise was 6.83 per cent in the vegetable basket and 8.14 per cent in 'cereals and products', NSO said.
The CPI Inflation in the food basket was 5.42 per cent in July, down from 9.36 per cent in June, and 11.51 a year ago.
Inflation in the 'fuel and light' segment was in negative at 5.48 per cent.
The NSO data further showed that inflation was more than the national average in rural India at 4.1 per cent while in urban areas it was 2.98 per cent.
Among states, the highest inflation was in Bihar at 5.87 per cent and the lowest in Jharkhand at 1.72 per cent.
Commenting on the data, Aditi Nayar, Chief Economist, ICRA said the CPI inflation expectedly witnessed a base-led softening to a 59-month low in July, printing slightly lower than ICRA's estimate for the month.
The food and beverages segment accounted for as much as 146 bps of the 154 bps dip in the headline inflation print between these months, as anticipated, she said.
"The IMD's expectations of above normal rainfall during August-September 2024, amidst the likely development of La Nina conditions at end-August 2024, augurs well for the kharif crops, although ICRA remains watchful of the episodes of heavy rainfall and flooding across some states that could harm the standing crops and impact perishable prices during this period," Nayar added.
The Reserve Bank expects a degree of relief in food inflation from the pick-up in the south-west monsoon and healthy progress in sowing and buffer stocks of cereals continue to be above the norms.
Global food prices also showed signs of easing in July, after registering increases since March 2024.
Assuming a normal monsoon, and taking into account the 4.9 per cent inflation print in the first quarter, the RBI expects the CPI inflation for 2024-25 is projected at 4.5 per cent, with Q2 at 4.4 per cent; Q3 at 4.7 per cent; and Q4 at 4.3 per cent.
The headline CPI inflation edged up to 5.08 per cent in June 2024 due to higher-than-expected food inflation.
