Chief economic adviser K.V. Subramanian has attributed the rise in inflation to supply-side frictions and exuded confidence that retail inflation will come down in the days ahead with the easing of lockdowns.

According to government data, retail inflation rose to 6.93 per cent in July, driven
by rising prices of food items such as vegetables, pulses, meat and fish.

However, wholesale price-based inflation declined 0.58 per cent in July, even as food items turned costlier.

“If you look at inflation... it’s primarily because of those supply-side frictions, but as local lockdowns are actually being reduced, these frictions should basically go down,” he said.

“Overall, the difference between wholesale and retail inflation is primarily because of supply-side factors which should decrease and, therefore, going forward even retail inflation should ease,” Subramanian said.

There are fears that retail inflation would remain at an elevated level during the rest of the year, limiting the scope for the RBI to further ease the benchmark interest rate.

The six-member Monetary Policy Committee (MPC) headed by the RBI governor has been given the mandate to maintain the annual retail inflation at 4 per cent until March 31, 2021, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent.

Retail inflation so far has been in the tolerance range of MPC except for a breach in July. In June, retail inflation was 6.09 per cent.

At the same time, WPI inflation in June was at (-) 1.81 per cent, while for the month of May and April it was (-) 3.37 per cent and (-) 1.57 per cent, respectively.

As far as growth is concerned, India’s economy suffered its worst slump on record in April-June, with the gross domestic product contracting 23.9 per cent.