In July 2023, India Consumer Price Index (CPI) inflation increased to 7.44% YoY from 4.87% in June. Erratic weather conditions, including a delayed monsoon and uneven distribution of rainfall, have resulted in higher food prices. The ‘food and beverages’ inflation surged to 10.6% YoY in July 2023, up from 4.7% YoY in the previous month. Vegetable prices, particularly tomatoes, have experienced a sharp increase over the last two months. Additionally, cereals, pulses, spices, and fruits have also witnessed a substantial increase in prices in July.

Core inflation fell to 5.0% YoY in July 2023 from 5.2% YoY in the previous month. The underlying inflationary momentum continues to ease in July, 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. The uneven distribution of rainfall and flooding in Northern India is likely to affect crop yields, even if the overall monsoon and 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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