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Retail inflation dips marginally to 5.3% in August

Retail inflation
Picture Credit: (Flickr, AARPR)

Retail inflation fell marginally to 5.3 % in August mainly due to easing food prices, official data shows. The figure based on the Consumer Price Index (CPI) was 5.59 % in July and 6.69 per cent in August 2020.

As per data released by the National Statistical Office, inflation in the food basket was 3.11% in August, compared to 3.96 per cent in the preceding month.

However, economists warned that inflationary risks persist and could dampen the fervour for festive spending as inflation in health (7.8%), transport and communication (10.2%), fuel and light (almost 13%), remains high. They attributed the downward movement in inflation largely to the base effect — CPI inflation was at 6.7% in August 2020, with the index rising 9.05%.

Retail inflation, which rose sharply to 6.3 per cent in May from 4.23 per cent in April, has been on a downward trajectory since then. It was 6.26 per cent in June and 5.59 per cent in July this year.

The Reserve Bank, which mainly takes into account retail inflation to decide monetary policy every two months, has been tasked by the government to keep it at 4 per cent, with a tolerance band of 2 per cent on either side.

Radhika Rao, economist and senior vice-president, DBS Singapore, said inflation decelerated on the back of favourable base effects and moderate food price pressures, as most sub-segments trended down, barring oil and fats.

“The inflation tailwind will allow the central bank to remain accommodative at the October policy review, with a bigger focus on liquidity management via absorption measures.

“On a sequential basis, pipeline forces remain under watch, particularly due to the domestic fuel tax rigidity, service reopening gains and pass-through of higher costs on account of supply bottlenecks alongside firm input prices,” Rao said.

The Reserve Bank kept the key interest rate unchanged in its monetary policy review in August.

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