Inflation likely to settle at 2 pc in Aug as food prices cool: Report

New Delhi, Sep 11
The consumer price index (CPI) is likely to settle at 2 per cent in August, a Bank of Baroda (BOB) report said on Thursday, citing a projected decline in its Essential Commodity Index (ECI).

The public sector lender said that the BoB ECI has been in deflation territory for 4th consecutive month in a row, declining by -1 per cent, on a year-on-year (YoY) basis in August and by another -0.9 per cent in the first 9 days of September.

The major support had come from vegetables and pulses, supported by better production. In September, prices of tomato, onion and potato are showing a downward correction in prices, with pronounced correction visible for tomato, the bank stated.

Apart from this, global food and energy prices also remained in favour of a lower inflation rate.

"The current move of the government to lower GST rates on the majority of FMCG and durable goods, among others, is a sigh of relief for inflation. We assess the overall impact on CPI to be 55-75 basis points," the report highlighted.

Ten out of 20 commodities in the index witnessed deflation, with the sharpest pace being observable for Onion and Potato.

For onion, the decline in retail prices is the sharpest since January 2021 at -37.5 per cent YoY. For potato as well, the current print is at its 44-month lowest, the report noted.

Among pulses, most of the sub-components are witnessing successive periods of deflation.

Maximum decline is visible for tur/arhar, which has fallen by -29 per cent in August. The other categories of pulses, which noted a considerable decline, are urad (-8.9 per cent), moong (-5.2 per cent) and masoor (-1.4 per cent), the public sector lender stated.

The decline in inflation is supported by better production. In fact, in the ongoing Kharif season, the sown area of pulses has improved. Among cereals, the retail price of rice has softened at a slower pace.

On a month-over-month (MoM) basis, BoB ECI increased by 1 per cent in August. However, it has increased by 0.8 per cent on a seasonally adjusted MoM, meaning that the seasonal phenomenon is partially responsible for the sequential price buildup.