India inflation likely dropped to an eight-year low in July: Poll

Cooling food price rises likely reduced India retail inflation to an eight-year low of 1.76% in July, below the low end of the Reserve Bank of India's 2% to 6% tolerance band for the first time in over six years, a Reuters poll of economists showed.

Despite uneven monsoons, a strong spring harvest has helped India keep a lid on food prices, extending the country's longest disinflationary streak in more than a decade. 

 

The RBI left rates unchanged at 5.50%, as expected, on Wednesday and said the inflation outlook was "more benign".

The annual change in the Consumer Price Index (CPI) eased to 1.76% in July from 2.10% in June, according to the median forecast from an August 4-8 survey of 41 economists. Forecasts ranged from 1.10% to 3.10%.

If correct, this will mark the ninth straight month inflation has fallen. 

 

"We are expecting food inflation to be lower, to contract on a year-on-year basis...we continue to see this moderation on the back of healthy supply coming from last year - that's bringing about this disinflationary trend," said Sakshi Gupta, principal economist at HDFC Bank.

"Although on a month-on-month basis, certain vegetable prices have gone up - for instance, onion and tomato prices - but that increase has been very moderate and lower than the usual seasonal trends."

Inflation was expected to average 3.40% this fiscal year, slightly above the RBI's 3.10% forecast, a recent separate Reuters poll showed. 

 

The benign inflation outlook gives the RBI more room to support the economy, which is under pressure after US President Donald Trump sharply raised tariffs on Indian goods.

"Given the challenging external environment, high US tariffs on Indian goods, a general environment of economic uncertainty and weakening domestic activity indicators growth may disappoint," said Dhiraj Nim, an economist at ANZ. "Inflation could undershoot the RBI's revised projections but is unlikely to drive further easing."

Core inflation, which strips out volatile components like food and fuel and better reflects domestic demand, was expected to have fallen to 4.20% in July, down from an estimated 4.30% in June.

The Indian statistics agency does not publish official core inflation data.

Inflation based on the Wholesale Price Index (WPI) was expected to have edged down to -0.30% in July from -0.13% in June, the poll showed.