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CPI Inflation at 5.3% in August 2021: ICICI Reports

September 15, 2021 11:06 AM

CPI Inflation at 5.3% in August 2021

CPI Inflation for August declined further to 5.3% compared to 5.6% in July 2021. Inflation print has now declined 100 bps in two months from 6.3% in June 2021 to latest print being at 5.3%

· The decline in headline inflation is last two months is largely driven by a fall in food inflation. Consumer Food Price Index has come down sharply in the last two months from 5.1% in June 2021 to 4.0% in July and to 3.1% now in August 2021. The favourable base effect of vegetables within food is the major reason for the low food inflation

· Core inflation is down marginally at 5.8% in August compared to 5.9% in July 2021

Read More: July oil imports reach 1-year low on refinery maintenance

· Overall three items viz. oil & fats, transport & communication and fuel & light continue to be major contributors. The total contribution of these three items is around 3.0% out of 5.3% headline inflation. Transport and communication (petrol) and fuel & light (LPG) contributed around 1.8% while oil & fats (edible oil) contributed 1.2% in headline inflation. Effectively, edibles oils and global crude oil prices are driving inflation higher

· Overall, within food inflation, oil & fats seem to have peaked as lower custom duty and lower global prices should ease retail prices, going forward. Within core, the month on month rise in transport and communication should recede as retail prices are marginally lower and have stabilised. The positive base effect should help bring transport inflation print lower from current higher levels. However, the indirect impact of elevated retail petrol prices is a major concern

· Inflation has receded below RBI’s upper target range of 6% and also printed below market expectations. The same will help RBI continue its growth focused approach and reduce market expectations of fast normalising liquidity stance

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