Food price volatility remains a contingent risk though Consumer Price Index (CPI) inflation came in below the Reserve Bank’s target for the second consecutive month in August, Reserve Bank of India (RBI) officials led by Deputy Governor Michael D. Patra said in the September edition of the RBI Bulletin released on Friday.

“Food inflation (y-o-y) firmed to 5.3% in August from 5.1% in July as a negative momentum of 30 bps [basis points] was more than offset by an unfavourable base effect of 52 bps,” they wrote in an article on ‘State of the Economy’.

Emphasising that high frequency food price data for September (up to the 18th) indicated a moderation in the prices of cereals (mainly for rice) and pulses (except for gram), they said among vegetables, potato and tomato prices fell, while those of onion recorded an increase. Edible oil prices remained steady, they pointed out.

In terms of subgroups in the August data, inflation in eggs, fruits, vegetables and non-alcoholic beverages picked up while it softened in cereals, meat and fish, pulses, and sugar, they noted.

Stating that edible oils and fats recorded a lower rate of deflation while deflation in spices deepened, they said milk prices continued to record a modest inflation of 3% for the third consecutive month.

Fuel and light recorded deflation of 5.3% in August (5.5% deflation in July) primarily on account of the decline in LPG prices by 24.6% (y-o-y), they wrote, adding other items in the fuel group, however, recorded positive inflation in August.

Observing that headline inflation had edged up to 3.7% in August, from 3.6% in July, they opined that the marginal increase in inflation came entirely from an unfavourable base effect of about 5 bps while the index remained unchanged at the previous month’s level (zero momentum).

Noting that both CPI fuel and CPI core (i.e., CPI excluding food and fuel) groups recorded positive momentum of 34 bps and 27 bps, respectively, while the CPI food group recorded a negative momentum of 30 bps, they said core inflation moderated to 3.3% in August, from 3.4% in July.

“Inflation increased in case of transport and communication, education, recreation and amusement, and household goods and services while it remained steady for sub-groups such as clothing and footwear, housing, and health. Personal care and effects, and pan, tobacco and intoxicants recorded a moderation,” they wrote.

In terms of regional distribution, rural inflation at 4.2% was higher than urban inflation at 3.1% . Majority of the States registered inflation below 6%, they stated.