CPI inflation hits 10-month high in August

Consumer price index-based inflation (CPI) for August crawled up to 3.21 per cent year-on-year, compared with 3.15 per cent in July and 3.69 in August 2018. The data released by the Ministry of Statistics and Program Implementation (MOSPI) after the market hours on Thursday clearly shows that the CPI has hit a 10-month high in August.

The official data showed that the uptick in CPI was largely due to a sharp rise in food prices. Consumer food price inflation (CFPI) for August rose to 2.99 per cent from 2.36 per cent in July and from 0.29 per cent in August 2018.

Among the food items, vegetables segment grew at 6.9 per cent, pulses and products at 6.94 per cent, and meat and fish at 8.51 per cent. Besides, some non-food items also saw sharp uptick in August. The healthcare saw an increase of 7.84 per cent, education and personal care and effects saw a rise of 6.10 per cent and 6.38 per cent, respectively, and housing 4.84 per cent.

On the other hand, inflation for household goods and services is on declining trend from January 2019 as CPI stood at 3.66 per cent in August. Inflation rate for transport and communications has also declined in August 2019 to 1.2 per cent from 1.6 per cent in June 2019. This fall in prices in these two segments point out at weak consumption scenario.

Macroeconomic data are crucial for the market as they show the health of the economy. After growth, what matters most to the market participants is the inflation rate.  If the inflation rate scales higher then it raises concerns about the rising prices and the markets react to it as rising prices might dampen consumption in the economy. But if inflation rate eases then it is a good sign as lower prices might induce increase in consumption.

Since the latest data shows that there have been rise in prices, the market is expecting the Reserve Bank of India (RBI) will tweak its monetary policy further and reduce the interest rates to boost consumption in the economy.