July inflation seen easing to 9.2%

India's wholesale price index likely rose an annual 9.2% in July, slightly slower than June's 9.44%, as policy tightening by the Reserve Bank of India (RBI) was partially offset by surging food prices, a Reuters poll showed.

The forecasts for India's main inflation gauge, from 27 economists, ranged from 8.9 to 10.0%.

"The contribution of food ... and fuels to overall inflation has gone up," said Rupa Rege Nitsure, chief economist at Bank of Baroda.

Food inflation hit a four-month high at the end of July, driven primarily by vegetable prices, government data showed on Thursday.

The RBI has aggressively increased rates since March last year and is expected to tighten them further, despite the global economic uncertainty.

The central bank, which is scheduled to meet on Sept. 16 for its next policy review, raised rates by a steeper-than-expected 50 basis points last month.

FACTORS TO WATCH

• The industrial production rose a faster-than-expected 8.8% in June, government data showed on Friday. The median forecast in a Reuters poll was for an annual rise of 5.5%.
• Food inflation quickened to 9.9% and fuel prices climbed 12.19% in the year to July 30, compared to 8.04 and 12.12%, respectively a week earlier, government data showed on Thursday.
• The index of primary articles like food, rubber and tobacco, which forms about 20% of the WPI, rose to 12.22% compared to 10.09% in the previous week.

MARKET IMPACT

• If inflation data comes above forecasts, the 10-year benchmark 10-year federal bond yield could rise 5 to 6 basis points, traders said.
• If it comes below expectations, there could be a sharp drop of about 10 basis points in the 10-year bond in the backdrop of a bleak global economic outlook.
• Overnight indexed swaps may also post a sharp 10 basis points rise or fall based on deviation from consensus.