In a shot in the arm for the Narendra Modi-led NDA government, the annual consumer price inflation (CPI) further eased to 1.54 percent in June, helped by a fall in food prices, government data showed on Wednesday.Noteworthy, the rise was slower than 1.70 percent forecast by economists in a Reuters poll, and was the lowest since India started releasing retail inflation data in January 2012 based on a combined CPI index for rural and urban consumers. Consumer prices rose 2.18 percent year-on-year in May. Retail food prices fell 2.12 percent last month from a year ago, compared with a 1.05 percent fall in the previous month.
Also, core consumer inflation was seen at around 3.9-4 pct in June; it excludes food and energy prices. It eased to around 3.9 percent to 4 percent from around 4.2 percent in May, according to estimates from three analysts on Wednesday. Estimates provided ranged from 3.85 percent to 4.0 percent.
Separately, data showed industrial output rose 1.7 percent in May from a year earlier.
According to A Prasanna, economist, ICICI Securities Primary Dealership Ltd, “The continued softness in core inflation should comfort the MPC that underlying price pressures have eased, in addition to the collapse in food prices over the past few months.”
“Accordingly, we expect the MPC (monetary policy committee) to cut the repo rate by 25 bps in their August review. Subsequently we expect the MPC to be on a wait and watch mode through this financial year. We expect, headline inflation to top around 4 percent by March 2018 as food inflation reverts to more normal levels,” Prasanna added.
“Further price data is likely to be clouded by both GST (goods and services tax) and government house rent allowance increases. Lastly, with major central banks likely starting to contract balance sheets by last quarter of this calendar year, global financial markets could turn more volatile from hereon. Taking all this into consideration the MPC would prefer to stay on sidelines after easing rates in August.”