Consumer Prices

The sudden surge in consumer price index (CPI) by 2.5 percentage points to 7.4% in July, a 15–month high, has certainly caught the policymakers by surprise. The major reason for the current spike in consumer prices is the surge in food prices which has shot up almost fourfold from 3% in May 2023 to 11.5% in July. This is in sharp contrast to the trends since January 2023 when the CPI steadily declined by 2.2 percentage points to touch a two–year low of 4.3% in May 2023 and then marginally picked up to 4.9% in June.

This decelerating trend in consumer prices since January had persuaded even the Reserve Bank of India (RBI) to pause the hard monetary stance it adopted since May 2022. From that juncture, when the consumer price inflation was edging close to double–digit levels, the central bank had steadily increased the repo rates by 250 basis points to 6.5% by February 2023. But as the inflationary trends started softening, the RBI had held the policy rate steady in the last three monetary policy reviews.