Retail price inflation rate fell to a three-month low of 5.59 per cent in July from 6.26 per cent the previous month, due to a slower price rise in food items, particularly vegetables. However, economists cautioned that inflationary pressures may come back if supply is disrupted and demand rises with economic recovery later in the current financial year.

       Also, fuel inflation remained elevated in July despite some moderation from the previous month. Petrol was still at 23.70 per cent inflation rate against 24.54 per cent. Diesel saw higher moderation to 22.71 per cent compared to 28.70 per cent.

       Health services, an important category amid pandemic, saw inflation rate rising moderately to 7.74 per cent from 7.71 per cent.

       The consumer price index (CPI)-based inflation rate came back within the monetary policy committee’s (MPC) tolerance limit after a span of two months. MPC expected the inflation rate to be 5.9 per cent in the second quarter of the current financial year. If this turns out to be true, the inflation rate might rise in August and September or one of these months.

       Aditi Nayar, chief economist at ICRA, said the July inflation rate receded below the MPC’s upper six per cent threshold which will help in quelling anxiety about immediate policy rate hike.

       Vivek Rathi, director research at Knight Frank India said with this monetary policy guidance metric in check, households and corporate borrowers alike will continue to benefit from the low interest rate and accommodative monetary stance for a sufficiently long period of time.

       Rumki Majumdar, economist at Deloitte India said the decline in the inflation rate suggests that inflation was largely a function of supply chain disruptions.”We believe that inflation may ease in the coming months assuming no rise in infections. However, high oil and commodity prices will keep the pressure on prices," she said.

       Nayar said the considerable moderation in the inflation rate was primarily led by food and beverages, while core inflation rate, which does not take into account food and fuel inflation rate, recorded a modest dip.

       “The softening in the core inflation to 5.7 per cent in July from 5.9 per cent in June provides some relief,” she said.

       She expected the inflation rate to remain sticky in the 5-6 per cent range over the next three quarters. “ It's increasingly difficult to characterise the pressures as purely transitory in nature. A small disruption could push inflation back above the 6 per cent threshold, which implies that some uneasiness will continue about how soon the MPC may embark on policy normalisation.”

       Nayar anticipated the MPC will embark on policy normalisation once domestic demand strengthens and starts dominating inflationary pressures, in place of supply-side issues later this financial year.

       Even as the food inflation rate dropped to 3.96 per cent from 5.15 per cent, certain items saw an elevated rate of price rise. For instance, the inflation rate in eggs rose to 20.82 per cent in July from 19.35 per cent in the previous month.

       However, deflation (the rate of fall in prices) in vegetables rose to 7.75 per cent from 0.70 per cent. Cereals also saw deflation, but it moderated to 1.75 per cent from 1.94 per cent. Sugar and confectionery entered deflation at 0.52 per cent from inflation of 0.79 per cent .

       Also, the rate of price rise in pulses saw moderation after the government intervened to make their imports cheaper. However, it still remained at 9.04 per cent in the month, down from 10.01 per cent in June. Similarly, the inflation rate in oil and fats was at 32.53 per cent compared to 34.78 per cent. Fruits were at 8.91 per cent against 11.82 per cent. Non-alcoholic beverages witnessed an inflation rate of 14.44 per cent versus 14.71 per cent.