New Delhi: Retail inflation in July eased to 3.54%, marking a sharp decline after it rose in the previous month. With this, retail inflation has fallen below the RBI’s medium-term target of 4%.

Stock market investors may respond positively

Data released by the government suggested that retail inflation has reached its lowest level in five years.

“There is sharp decline in the year-on-year inflation rate based on the All India Consumer Price Index (CPI) number for the month of July 2024, which is the lowest in the last 59 months,” the government’s press release said.

“Year-on-year inflation rate based on All India Consumer Price Index (CPI) number is 3.54%(Provisional) for the month of July 2024. Corresponding inflation rate for rural and urban is 4.10% and 2.98%, respectively,” it added.

The sharp drop in July comes after retail inflation had hit a four-month high of over 5% in June 2024.

One of the major contributing factors behind the sharp drop in July was food inflation, which was the lowest since June 2023.

During the month, inflation decreased across all food groups, with a notable drop in the prices of vegetables, fruits, and spices.

The government noted that in July 2024, the year-on-year inflation rate based on the All India Consumer Food Price Index (CFPI) was provisionally 5.42%. For rural areas, the rate was 5.89%, while in urban areas, it stood at 4.63%.

This development is expected to positively impact the stock market, easing concerns about rising inflation. It also offers relief to the RBI, which recently kept key rates unchanged, reaffirming its commitment to inflation targeting.

Stock market investors may respond positively, as the news could boost optimism for a faster-than-expected rate cut.