Retail Inflation In India Likely Eased In July, Still Far From RBI's Target: Poll
Inflation outlook on near-term basis remains highly uncertain as the uneven nature of monsoon and a weak rupee may dull the effectiveness of those government efforts to tame consumer price rises
Retail inflation of India likely eased in July because of a decline in food and fuel prices, found a Reuter’s poll. According to the report, the rate of inflation is still placed well above the Reserve Bank of India’s (RBI’s) upper tolerance limit for a seventh consecutive month.
Food prices, which account for nearly half of the consumer price index (CPI) basket, softened last month. However, the bulk of the slowdown came from an easing in global rates and the lagged effect of government interventions to reduce import duties and curbs on wheat exports.
Inflation outlook on near-term basis remains highly uncertain as the uneven nature of this year’s monsoon and a weak rupee currency may dull the effectiveness of those government efforts to tame consumer price rises.
The Reuters poll of 48 economists showed inflation, as measured by CPI likely fell to an annual 6.78 per cent in July, a five-month low, from 7.01 per cent in June.
The latest data on CPI inflation will be out on August 12 and the forecasts ranged from 6.40 per cent to 7.10 per cent.
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, “Food and energy prices are essentially easing quite marginally, even as the rupee hit historic lows in recent weeks. It (inflation) could remain sticky over the next few months, but it's not going to be much worse than where we are at currently.”
Wholesale price (WPI) inflation was seen moderating to 14.20 per cent in July from 15.18 per cent in June, the poll revealed. While the lagged effect from a cut in fuel taxes helped restrain price pressures somewhat, consumer price rises are expected to persist at a strong pace in the months ahead.
The RBI on Friday raised interest rates by 50 basis points to 5.40 per cent, taking it above where it was before the pandemic, with more rate rises expected to come.
Governor Shaktikanta Das has warned that persistently elevated cost of living conditions could translate into higher wages and inflation, which is unlikely to fall within the top end of the mandated target band until December.
That is roughly in line with a separate Reuters poll that has shown inflation staying above target until early next year.
“We think the RBI will continue to hike rates over the next few months. We expect at least a 25bp hike in September, followed by another 25bp hike in December 2022,” said Mitul Kotecha, head of emerging markets strategy at TD Securities.
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