India's retail inflation fell in July to a near five-year low, as food inflation eased from previous highs due to a base effect, government data showed on Monday.
Annual retail inflation (INCPIY=ECI) was 3.54% in July, down from 5.08% in June. The latest print is the lowest since August 2019.
Economists polled by Reuters had forecast inflation at 3.65%, based on a higher print in July last year when inflation hit a 15-month peak of 7.44%.
Retail inflation fell below the Reserve Bank of India's (RBI) target of 4% largely due to the high-base effect, suggesting the slower pace of price rises was temporary. The inflation rate was last recorded below 4% in September 2019.
"Moderation in retail inflation was on expected lines. A favourable base from last year largely pulled down the headline inflation below 4%," said Swati Arora, economist at HDFC Bank.
Prices of food, which account for nearly half of the retail inflation, rose 5.42% from last year in July, compared to a 9.36% rise in June.
Vegetable prices rose 6.83% year-on-year in July against 29.32% in the previous month.
The inflation rate for cereals was 8.14% in July compared to 8.75% in the previous month, while that of pulses was 14.77% during the month from 16.07% in June.
"On a sequential basis, food momentum continued to remain high largely due to high vegetable and pulses prices," Arora said.
India's central bank kept its key interest rate unchanged for a ninth straight policy meeting last week, focusing on bringing inflation down.
The RBI Governor Shaktikanta Das said the country's food inflation remained "stubbornly" high and it was important for the monetary policy to stay the course in bringing inflation down towards its medium-term target of 4%.
The RBI expects inflation to average 4.4% in the July-September period and 4.7% in the October-December period.
Core inflation, which strips out volatile food and energy prices, continued to hover around 3% and was estimated between 3.35% and 3.40% in July from 3.08% and 3.14% in June, according to three economists.
"Based on current inflationary and growth trends, there is no change expected in policy rates," Paras Jasrai of India Ratings.
The Indian government does not release core inflation data.
India is set to receive normal rainfall during the annual monsoon, which is key to the Asian country's economy, but policy makers remain concerned as the distribution has not been very even.
