India's Aug retail inflation accelerates to 7% y/y after surge in food prices

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By Manoj Kumar

NEW DELHI (Reuters) - India's retail inflation accelerated to 7% year-on-year in August, driven by a surge in food prices, adding pressure on the central bank to further hike interest rates later this month.

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) has raised the benchmark repo rate by 140 basis points since May to 5.4%, including 50 basis points last month, aiming to curb consumer demand.

Annual consumer price index-based inflation in August was higher than expected, data released by the National Statistics office showed, compared to the 6.9% forecast in a Reuters poll of economists, and above July's 6.71%.

Food inflation, which accounts for nearly 40% of the CPI basket, rose 7.62% year on year in August, compared to a revised 6.69% in July. (Graphic: India's retail inflation, https://graphics.reuters.com/INDIA-ECONOMY/INFLATION/dwpkrxjmevm/chart_eikon.jpg)

The government has imposed curbs on exports of wheat, sugar, and rice to cool local prices as it is worried over the shortfall in rainfall in some parts of the country could drive up food prices.

The MPC will hold its next monetary policy meeting on Sept. 30, and is widely expected to raise the repo rate by 25-50 basis points, economists said.

Shaktikanta Das, RBI governor said earlier this month that retail inflation had peaked and was expected to moderate to around 5% by the April-June quarter of the next year, citing a fall in international crude oil and other commodity prices.

The rise in food and fuel prices has severely hit poor households.

"We have cut down spending on vegetables," said Puspanjali Sahu, a resident of the eastern Indian city of Bhubaneswar. "We are not going out to any eatery, we are not watching movies in the cinema hall."