What could be the outcome of the higher inflation number for July 2020?

The retail price inflation or the CPI inflation for the month of July 2020 was announced one day later than scheduled. Inflation came in sharply at 6.93% almost back to the high levels recorded in December 2019 and January 2020.

To add insult to injury, even June inflation was revised upwards from 6.09% to 6.23%. The inflation surge in July was driven higher by a surge in food inflation to 9.62% caused by specific items of the food basket like vegetables, oils, fats, meat and pulses among others.

It is hoped that there could be some respite once the actual Kharif numbers come in for the year since rains and sowing has been robust. But, supply chain challenges will still be a major issue. Core inflation itself came in above the 5% mark, which is not too encouraging.

As a result, RBI may be wary of cutting the repo rates in October as is being anticipated. CPI inflation has been above 6% tolerance levels for seven out of the last eight months and that is not a great signal. Now traders will have to wait till December for any policy outcomes.