July CPI inflation eases to 3.78%; June IIP improves to 3.8%

CPI food inflation for July also eased substantially to 2.15% versus 5.48% in June

In what should cheer stakeholders, India's retail inflation fell to 3.78% in July from 5.40% in the month before, even as the growth in factory output accelerated to 3.8% in June from 2.7% in the previous month, official data showed on Wednesday.

Further, the growth in factory output was led by the manufacturing sector, which expanded by 4.6% in June against 2.2% in the month before. While mining output fell 0.3%, that for electricity was up 1.3%.

In the case of retail inflation, even as prices of onions and pulses have been skyrocketing, the rise in the index of food items was lower at 2.15% in July, as opposed to 5.48% in the month before.

The data on combined Consumer Price Index (CPI) for rural and urban areas, as also the index of industrial production (IIP), was released by the Ministry of Statistics and Programme Implementation on Wednesday evening.

"The consumer inflation headline number is a huge positive. We were below consensus at around 4.2 percent. The downside appears to come from food inflation which is a heartening trend. Along with the yuan devaluation move, I think there is a case for more (and) not less accommodation. The sooner the Reserve Bank of India steps on the easing peddle, the better it is," said Jyotinder Kaur, Principal Economist, HDFC Bank.

"The number is a big downside surprise, which means that CPI is in line to fall below RBI's 6% trajectory by January. This increases chances of RBI cutting interest rate one more time in this fiscal year ending March," said A Prasanna, Economist, ICICI Securities Primary Dealership Ltd, Mumbai.

"The CPI number is significantly lower than expected. Clearly it looks like food is one significant factor on the downside. You have falling global crude prices and very minimal Minimum Support Price (MSP) increases that have enabled food prices to be very soft. This number is significantly below RBI's projection for this period, and if the trend continues we should see RBI marking down its year-end inflation projection," said R Sivakumar, head of fixed income, Axis Asset Management, Mumbai.