Retail Inflation In India Likely Held Steady Just Above 7 Per Cent In June: Poll

Most economists, however, warned the near-term outlook was highly uncertain as a heatwave last month pushed up vegetable prices

Retail inflation in India likely held steady in June, but well above the Reserve Bank of India’s (RBI’s) tolerance limit for a sixth month as lower fuel and cooking oil prices offset higher services and food costs, according to Reuters poll.

Overall inflation was partly contained after the government cut taxes on petrol and diesel and imposed restrictions on food exports despite a substantial increase in food prices, rising at the fastest pace in nearly two years.

According to the report, most economists, however, warned the near-term outlook was highly uncertain as a heatwave last month pushed up vegetable prices. The government has also cut estimates of wheat production because of dry spells in northern India.

The July 4-8 Reuters poll of 42 economists showed inflation as measured by the consumer price index (CPI) was steady at an annual 7.03 per cent in June, versus 7.04 per cent in May. Forecasts for the data due on Thursday were in a 6.45 per cent -7.70 per cent range.

If realised, inflation would be above 7 per cent for the third consecutive month and above the RBI's 6 per cent upper tolerance target for a sixth month.

"While several goods and services categories are likely to report higher inflation in June, fiscal measures undertaken by the government...will help to cap the upside in domestic prices across food and other segments," noted Rahul Bajoria, chief India economist at Barclays. "Still, services costs are trending higher, and a passthrough from higher commodity prices is evident across several sectors." he added.

The RBI has raised interest rates by 90 basis points so far this year to 4.9 per cent and is set to add more in coming months. Recently, Governor Shaktikanta Das said inflation was unlikely to fall within the top end of its mandated target band until December.

Wholesale price inflation was seen only moderating slightly from May's three-decade high of 15.88 per cent to 15.50 per cent, the poll showed. Although consumer price inflation seems to be stabilising, widening trade and current account deficits due to high global crude oil prices pushed the rupee to a recent record low of $79.375, raising concerns over higher imported inflation.