Business Standard

India's July inflation 'dipped' below RBI target, high base effect at play

Rising food costs, especially for vegetables, and hikes in telecom tariffs last month were offset by a higher base from July last year

Financial stress

Core inflation, which excludes volatile items like food and energy, was forecast to be 3.20 per cent in July. Image: Shutterstock

Reuters BENGALURU

Listen to This Article

India's consumer price inflation likely eased in July to below the Reserve Bank of India's 4.0 per cent medium-term target for the first time in nearly five years, thanks to last year's high base, according to a Reuters poll of economists.

Rising food costs, especially for vegetables, and hikes in telecom tariffs last month were offset by a higher base from July last year when inflation hit a 15-month peak of 7.44 per cent, suggesting the slower pace of price rises was temporary.

The Aug. 2-7 poll of 36 economists forecast the consumer price index rose at an annual rate of 3.65 per cent last month, down sharply from 5.08 per cent in June.

 

Forecasts for the data, due Aug. 12 at 1200 GMT, ranged widely from 2.85 per cent to 5.30 per cent, 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 of a favourable statistical base," said Dipanwita Mazumdar, economist at Bank of Baroda.

"Barring this, another positive thing about the inflation sub-print is that price pressures are not widespread, and its epicentre emerges from a few items such as tomatoes, onions and potatoes."

She said core inflation was likely to "exhibit some upward correction" and the risks were "of inflation being 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 per cent this quarter before averaging 4.7 per cent-4.8 per cent in coming quarters, suggesting the RBI would not change its policy stance over just one month's data.

The RBI will keep interest rates steady for a ninth straight meeting on Aug. 8, and 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 per cent 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 per cent 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 per cent last month, from 3.36 per cent in June, the survey showed.

 


(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Aug 08 2024 | 10:26 AM IST

Explore News