In August 2023, India Consumer Price Index (CPI) inflation remained elevated at 6.83% YoY, but it eased from 7.44% in June. Headline inflation was largely driven by elevated food prices, while core inflation (which excludes food and fuel) continued to trend downwards.

Vegetables remained the largest contributor to the headline inflation – contributing 1.7% (approx. 25%) to 6.83% YoY headline inflation. Vegetables prices, however, witnessed a partial correction in August, largely on account of the fall in tomato prices. While tomato prices have decreased from their peak, onion prices are currently trending upwards. Other food segments, such as cereals, pulses, and spices, are also experiencing significant price increases.

Core inflation fell to 4.8% YoY in August 2023 from 5.0% YoY in the previous month. The underlying inflationary momentum continued to ease in August, as evident by the fall in refined measures of core inflation (which excludes transportation fuel and valuables).

We expect inflation to average around 5.5% in FY24. Recent increase in food inflation has pushed the inflation trajectory upwards. Uneven distribution of monsoon is likely to affect crop yields, even if sowing remains normal. RBI expected to remain in ‘wait and watch’ mode to assess the complete impact of the monsoon on food inflation.

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