CPI Preview: After Falling To Five-Year Low In July, Inflation To Ease Further On Base Effect

India's retail inflation could ease to the lowest in five years in August because of the base effect and continuing easing in food pressures.

The Consumer Price Index-based inflation is projected to ease to 3.42% in August compared to 3.54% in July, according to a median forecast of economists polled by Bloomberg. If that happens, it will be the lowest print since August 2019 and the second time since September 2019 that inflation will be within the RBI's target of 4%. To be sure, in January 2021, too, inflation was almost on target at 4.06%.

High-frequency data for perishables point to a moderation in momentum into August, which together with remnant base effects are likely to keep headline inflation in the lower half of the target band, said Radhika Rao, senior economist at DBS Bank.

For the month of August, while prices of onions and potatoes saw a rise on an annual basis, tomatoes saw a decline. Potatoes and onions were costlier by almost 50%, according to data from the ministry of consumer affairs. Tomato prices, however, fell by 50% on an annual basis.

On a sequential basis, while potato and onion prices did not see much change, tomato prices fell by 23.3% from July.

The trajectory of monsoon has evolved broadly in line with IMD’s projections, according to a report by Bank of Baroda. This should be positive for the inflation outlook, it said. However, risks remain from unseasonal or excess rain in some parts of the country, it said.