Bengaluru: India’s consumer price inflation likely eased in July to below the Reserve Bank of India’s (RBI) 4.0% medium-term target for the first time in nearly five years, according to a Reuters poll of economists. This decline is attributed to the high base effect from last year.
Rising food costs, especially for vegetables, and hikes in telecom tariffs last month were offset by a higher base from July of the previous year when inflation peaked at 7.44%. This suggests that the slower pace of price rises is temporary.
The August 2-7 poll of 36 economists forecast the consumer price index rose at an annual rate of 3.65% in July, down sharply from 5.08% in June. Forecasts for the data, due on August 12 at 1200 GMT, ranged from 2.85% to 5.30%, underscoring uncertainty in predicting inflation in a country where consumer prices are largely dependent on erratic monsoon rains.
“The only comfort inflation would be getting in July and August is from a favourable statistical base,” said Dipanwita Mazumdar, economist at Bank of Baroda. “Barring this, another positive aspect is that price pressures are not widespread, and the epicentre is a few items such as tomatoes, onions, and potatoes.”
Mazumdar noted that core inflation was likely to “exhibit some upward correction” and the risks were “tilted to the upside.”
While the expected slowdown in price rises would give the RBI some relief, several economists surveyed said the fall was probably temporary as a weak rupee and still-high food prices would keep inflation elevated in the near term.
A separate Reuters poll showed inflation easing to 4.0% this quarter before averaging 4.7%-4.8% in the coming quarters, suggesting the RBI would not change its policy stance based on just one month’s data.
The RBI is expected to keep interest rates steady for the ninth straight meeting on August 8. Only a slim majority of economists in a separate Reuters poll expected the first rate cut next quarter.
“The MPC (Monetary Policy Committee) will likely look through this sub-4% print as it focuses on the inflation outlook… to assess whether inflation is moving durably towards the target,” said Shreya Sodhani, regional economist at Barclays.
“We expect the MPC to remain on hold in the upcoming meeting. We maintain our forecast of an RBI rate cut in December but note the risk of a delay if inflation does not progress in line with the RBI’s expectations.”
Core inflation, which excludes volatile items like food and energy, was forecast to be 3.20% in July, according to the median estimate from a smaller sample of 17 economists.
The Indian statistics agency does not publish core inflation data. Wholesale price index-based inflation likely eased to an annual 2.39% last month, from 3.36% in June, the survey showed.
