India's July consumer price-based inflation accelerates to 7.96 pct

Written by Agencies | New Delhi | Updated: Aug 13 2014, 03:37am hrs
InflationA Reuters poll had forecast the consumer price inflation rate would edge up to 7.4 percent from 7.31 percent in June. (Reuters)
Retail inflation inched up to 7.96 per cent in July, mainly due to higher prices of food items such as vegetables, fruits and milk.

Retail inflation measured on consumer price index (CPI) in June was 7.46 per cent (revised upwards from 7.31 per cent). It was at 9.64 per cent in the same month a year ago.

Food inflation in July this year rose to 9.36 per cent as against 7.97 per cent in June, according to the government data released today.

Vegetables were costlier in July with a double-digit price rise of 16.88 per cent, a steep rise from 8.73 per cent in June.

Fruit prices went up to 22.48 in July as against 20.64 per cent in June.

The rate of price rise in pulses was 5.85 per cent.

Inflation in milk and milk products stood at 11.26 per cent during the month under review.

Amongst others, food and beverages saw a prices rise of 9.16 per cent and non-alcoholic beverages prices at 6.35 per cent.

Inflation in cereals, however, eased marginally in July to 7.45 per cent as against 7.6 per cent in the previous month.

Other protein rich items such as eggs, fish and meat too witnessed lower inflation in July over the previous month.

Inflation in rural and urban areas in July was 8.45 per cent and 7.42 per cent, respectively. In June, it was 7.87 per cent and 6.82 per cent.

Commenting on the data, Samiran Chakraborty, Head of Research, Standard Chartered Bank (India), said the trend witnessed in prices is not comforting.



"Industrial production was weaker than the previous month but with consumer durables contracting sharply and capital goods rebounding sharply. These numbers are a bit difficult to digest as we have not really seen too much of an investment activity immediately and hence capital goods rising by ~23% remains a surprise. The bigger data for the day is the CPI inflation that has surpassed street expectations with a ~8% reading and also with the core CPI remaining sticky at ~7.4%. Our inflation model predicts that even as Headline CPI could be on the lower side in the next few months, the base effect advantage vanishes beyond November 2014. After this, Headline CPI inflation could again climb and there appears to be some risk for it to be very close to 8% for January. In such an atmosphere, there appears little chance for any change in the reaction function of RBI immediately and the hawkish rhetoric along with a status quo on policy rates is the best-case monetary policy option for the RBI."


"The IIP data for June continues to reflect expansionary industrial activity compared to last year. IIP grew by 3.4% in June 2014, compared to (-)1.85% in June 2013. As high as 68% of the industry groups had a positive growth in June 2014, and this is a good sign. However consumer durable as a sector continues to remain a concern, with a negative growth of 23.4% as per the latest estimates. Nevertheless, we forecast the IIP to continue on an expansionary trend in the second half of 2014 with improving consumer demand. ZyFin consumer spending sentiment data reveals that there is a rise in willingness to spend on durables, vehicles and homes among Indian consumers within the next 6-12 months. Along-with consumer demand, massive infrastructural push by the Central government should play a vital role in reversing the slowdown. However, some of the risk factors like high petrol import bill, demand for gold, rising agricultural exports and its impact on food inflation may prove a dampener of sorts to this reviving India story."


"Vegetable prices had increased by more than 35 percent in July on a month-on-month basis, which was much higher than the average increase over the last five years, so this uptick in CPI was expected.

The trajectory of higher food inflation always gets translated to higher core numbers with a gap of 5-8 weeks.

Given than the RBI is committed to anchoring inflation expectations in a meaningful manner, the possibility of commencement of easing in this financial year is ruled out.

I don't think we will see any hikes in interest rates as well as globally interest rates are very low and thus, prolonged pause is the only the option with the RBI. They will, however, continue with growth supporting measures through other channels like giving banks more liquidity."


"Core inflation has not moved at all, while CPI has increased mostly because of higher vegetable and food prices.

Although it looks seasonal, it is a negative for equities alongside weak factory output. It is very difficult to say what will happen in August due to the backdrop of a weak monsoon.

Our view is inflation should head lower in the next three to six months. RBI will continue to remain cautious."


"Inflation came in line with our expectations, led primarily by surge in fruits and vegetables. Though we expect the progress in rains and sowings to ease some pressure on food prices in the months ahead, RBI is likely to remain cautious and keep the policy rate unchanged."