India Inflation July 2023

India: Inflation surges in July on sizzling vegetable prices

Inflation rose to 7.4% in July, following June’s 4.9%. July’s reading marked the highest inflation rate since April 2022. The increase was almost entirely due to a surge in vegetable prices connected with poor weather conditions. In contrast, core inflation continued to moderate, falling by 0.3 percentage points from the prior month.

Annual average inflation was unchanged at June’s 6.0% in July.

Finally, consumer prices increased by 2.93% in July from the previous month, picking up from June’s 1.06% rise and marking the highest reading since July 2009.

Inflation is likely to cool in the coming months, with vegetable prices normalizing so far in August after spiking in June and July. Inflation should then settle below 5% in FY 2024 on a tougher base effect and as tighter monetary policy feeds through to the economy. However, a significant risk to inflation in the coming months is the El Niño weather pattern, which tends to disrupt the monsoon; during the period 1–16 August, rainfall in the country was 6% below the long-run average. In addition, it was unevenly distributed, creating more extreme weather conditions and further damaging crops; in the northwest, rains were 10% above average in the period, whereas in the east and northeast, they were 19% below average.

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