Finance Ministry sees food inflation easing further on back of better monsoon

New Delhi: Inflationary pressures in the Indian economy eased in July and food inflation is expected to come down further with this year’s better monsoon leading to higher agricultural production, according to the Finance Ministry’s monthly review released on Thursday.

Retail inflation based on the Consumer Price Index eased from 5.1 per cent in June 2024 to 3.5 per cent in July 2024, the lowest since September 2019.

This was mainly due to a significant fall in food inflation. It declined to 5.4 per cent in July 2024 from 9.4 per cent in June 2024, the review states.

The substantial fall witnessed in food inflation was helped majorly by a decline in vegetable inflation from 29.3 per cent in June 2024 to 6.8 per cent in July 2024 and mild deflation in ‘oils and fats’ and spices.

On the other hand, core inflation (which excludes food and fuel) was at a moderate level of 3.3 per cent in July 2024.

Overall, the retail inflation rate moderated to 4.6 per cent in the first four months of FY25 as compared to 5.3 per cent in FY24 (April-July), according to the review.

With moderate core inflation and positive progress in the monsoon, the headline inflation outlook is positive. Assuming a normal monsoon, CPI inflation for FY25 is projected at 4.5 per cent by the RBI, with Q2 inflation at 4.4 per cent.

A steady progress in the southwest monsoon has supported agricultural activity. The cumulative southwest monsoon rainfall was 3 per cent higher than the long-period average up to August 19, 2024. Further, the spatial distribution has improved, with 84 per cent of subdivisions receiving normal or excess rainfall. This has enabled healthy Kharif sowing.

As of August 16, the actual sowing area under total foodgrains was 4.8 per cent higher than the corresponding period of the previous year, while progress in cereals and pulses was 4.6 per cent and 5.7 per cent higher than the previous year.

Corresponding to healthy progress in monsoon, availability of water level in reservoirs improving, ensuring water adequacy for irrigation during current Kharif and upcoming rabi crop production. The storage availability in 150 reservoirs as of August 15, was 111 per cent of the corresponding period of last year and 114 per cent of the average storage of the last ten years, according to the Central Water Commission. This augurs well for healthy food production that will aid in cooling food inflation in the upcoming months. Further, to enhance productivity and resilience in the agriculture sector, various measures have been announced in the Union Budget FY25, the Finance Ministry said.