BS Policy & Politics: Food-driven retail inflation may cool only in Sept

Cereals, pulses and milk were other food items to push up the rate of price rise in July, prompting the government to take more measures to tame prices

One may have to wait till September to see the retail price inflation going below the Reserve Bank of India (RBI)'s comfort zone of six per cent. Even though seasonal, food items drove the inflation rate to a 15-month high of 7.44 per cent in July against 4.87 per cent in the previous month. Inflation in just tomatoes led to 1.16 percentage points rise in the inflation rate. Cereals, pulses and milk were other food items to push up the rate of price rise in July, prompting prime minister Narendra Modi to say that the government would take more measures to tame prices after it took quantitative steps on tur dal, rice and wheat. While tomato prices cooled a bit in August, onion rates rose, compelling the government to impose a 40 per cent duty on exports of the bulb vegetable and raise its buffer stock to 0.5 million tonne from 0.3 million tonne.

 

Other developments last week (August 14 to 20) showed that external demand conditions remained muted. This was evident from merchandise exports contracting for a sixth consecutive month in July, by 15.9 per cent year-on-year to $32.25 billion. Imports declined by 17 per cent to $52.9 billion for the seventh month in a row, leading to a trade deficit of $20.7 billion, though a bit lower than $25.45 billion a year ago.

Another external condition- rising bond yields in the US and the falling Chinese Yuan—led to the rupee declining to a record closing low of 83.15 against the dollar on Thursday. Though the rupee closed up 0.06 per cent to 83.10 on Friday, the pressure on the rupee will remain in the coming months.

However, domestic conditions remained strong, inducing Moody's Investor Services to affirm India's sovereign rating, albeit at the lowest investment grade. However, it highlighted the curtailment of civil society and dissent that raised political risks, citing unrest in Manipur and border tensions, among other developments. 

We have three stories today

Subhomoy Bhattacharjee assesses the progress of G-20 meetings in the finance, energy tracks etc.

Indivjal Dhasmana previews GDP for the first quarter of 2023-24 in the backdrop of IIP growth falling to 4.5 per cent during the period against 12.9 per cent in the corresponding period of FY23 and mixed corporate results.

Asit Ranjan Mishra does stock-taking of the BRICS since its inception and the way forward amid discussions of expanding the membership.

What to look forward to

August 25

Germany GDP Annual Growth Rate

The German economy shrank 0.2 per cent year-on-year in the second quarter of 2023, the same as a downwardly revised 0.2 per cent drop in the previous quarter, and compared to market forecasts of a 0.3 per cent decline, preliminary estimates showed.

United States Fed Funds Rate

The Federal Reserve raised the target range for the federal funds rate by 25bps to 5.25 per cent-5.5 per cent in July 2023, in line with market expectations, and bringing borrowing costs to the highest level since January 2001. 

August 28

Japan Unemployment Rate

Japan’s unemployment rate edged lower to 2.5 percent in June 2023 from 2.6 percent in the prior month, matching market forecasts. This was the lowest jobless rate since January, as the number of unemployed fell by 40 thousand to 1.73 million, while employment grew by 190 thousand to 67.55 million.