August consumer price index (CPI) fell sharply to 5.05 per cent year-on-year from 6.07 per cent in July, this can be attributed to a sharp fall in food prices, which enjoy about 50 per cent weight in the inflation basket, government data released today showed.
Seperately, data showed that July index of industrial production (IIP) came in at -2.4 per cent, compared to 1.95 percent in June. The fall in inflation and industrial output may bolster hopes for an interest rate cut by the Reserve Bank of India, which is targetting to bring CPI down to 5 per cent by January 2017. Economists say they expect CPI to go below 5 percent, and even closer to 4 percent by December, thanks to the base effect and falling food prices.
The IIP was down 0.2 per cent during the April-July period with manufacturing shrinking 1.4 per cent. On August 9, RBI left rates unchanged sounding alarm on the spurt in CPI inflation. The next RBI monetary policy review is on October 4, the first under the helm of Dr Patel, who took charge on September 4.