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CPI-based inflation softens in line with expectations at 7.80% in August

15 Sep 2014 Evaluate

Much in line with expectations, provisional annual inflation rate based on all India general Consumer Price Index (CPI) (Combined) eased to 7.80% in August as compared to 7.96% in July and 9.52% in the August, 2013, aided by slower annual increases in prices of fuel and light. CPI numbers of the month of August 2014 for Rural, Urban and Combined stood at 146.7, 143.0 and 145.1, respectively. The corresponding provisional inflation rates for rural and urban areas for the month under review stood at 8.35% and 7.04% as compared to 8.37% and 7.42% respectively in the previous month. 

However, food inflation during the month under review rose to 9.42% over 9.36% in July and 11.11% in August, 2013. The newly introduced Consumer Food Price Indices (CFPI) for rural, urban and combined stood at 152.0, 152.3 and 152.1 respectively for August 2014.

The inflation in August rose mainly due to the rate of price rise in food items, which have 37.15% weight in the CPI. Inflation of food and beverages (combined) receded to 9.16% as against 9.36% in July. Besides, Fuel and light prices also ebbed to 4.15% in August on a yearly basis, against 4.47% in July, however inflation in clothing, bedding and footwear grew to 8.53% in month under review against 7.31% in July.

In yet another encouraging development, CPI core stood at 6.89%, which is its first reading below 7%. With declining global commodity prices and a stable rupee, the core inflation was expected to see a decline as this may offset some demand led pressures on prices.

Overall, though the Retail inflation figures were much in line with expectation, disappointment came in from dismal July IIP numbers, the combined effect of which may prompt RBI to go for a prolonged pause on interest.  However, weak domestic demand and dovishness of central banks across the globe may hold back RBI from raising policy rates despite the structurally high food inflation.

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