Retail inflation rises to 7% in Aug on food prices, July IIP slips to 2.4%

India’s retail inflation rate reversed its downward trend in August, rising to 7 per cent as food prices gained pace and likely putting pressure on the central bank to further increase policy rates later this month. India’s retail inflation has been above the central bank’s upper tolerance limit of 6 per cent for eight consecutive months.

Separately, data released by the statistics office showed growth in the index of industrial production (IIP) eased to 2.4 per cent in July from 12.7 per cent in the preceding month as mining output contracted due to the monsoon rains.

Finance Minister Nirmala Sitharaman said last week that inflation management can’t be left to monetary policy, “which has proved totally ineffective in many countries”. She noted that both fiscal and monetary policies have to work in lockstep to contain the rise in prices.

The Reserve Bank of India has increased the policy rate by 140 basis points to 5.4 per cent in the past four months. Its Monetary Policy Committee is scheduled to meet on September 28-30, with economists expecting yet another interest rate hike.

The government has taken several steps to curb price rises. After imposing 20 per cent export duty on select rice varieties, it last week banned exports of all forms of broken rice in an attempt to cool prices. Earlier, it had banned export of wheat and atta to keep domestic prices under check.

The government on Friday said India’s rice production this kharif season could fall by 4-5 million tonnes (mt) due to a drought in four states and a shift towards other crops elsewhere. In the 2021-22 crop year, India produced 111.7 mt of rice in the kharif season. This is the first official estimate of the impact of the low monsoon rainfall in Uttar Pradesh, Bihar, Jharkhand, and West Bengal on kharif rice production.

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