Wholesale price inflation for July fell to a six-month low of 9.97%, prompting analysts to expect the central bank to go slow on monetary tightening. The consensus estimate for July inflation rate among economists was 10.4%.
Following the release of inflation data, six-months? bonds across all maturities gained as markets expect the central bank to go slow on monetary tightening.
? Of course inflation will moderate…Policy rates do have some impact, but base also plays a role,? said finance minister Pranab Mukherjee after the figures were released. India?s inflation figures still remains the highest among G-20 nations.
Plan panel deputy chairman Montek Singh Ahluwalia told media persons that annual inflation is still high and at unacceptable levels. Ahluwalia told FE in a recent interview that it was not difficult to ?kill? inflation provided ?you don?t mind the collateral damage? to the economy.
With the hike in fuel prices that happened in June getting reflected in prices of other commodities, the headline inflation is expected to claw back to double-digit territory in August. While annual inflation for fuel items dropped to 14.29% in July from 14.32% in the month before, on a month-on-month basis the fuel prices moved up by 3.21%, which will have an indirect impact on prices of other commodities.?The numbers are below my expectations. I think the full impact of fuel price hike will be visible only next month,? chief statistician of India TCA Anant told FE.
Manufacturing inflation, a major concern for the central bank, slightly eased to 6.15% from 6.55% in the month before. The central bank that expects headline inflation to drop to 6% by March end has already hiked key policy rates four times since mid-March. Samiran Chakrabarthy, head of research at Standard Chartered bank said that another 25-50 basis points hike in the policy rates can be expected in the current financial year itself.
Suman Bery, director general of Delhi-based think tank NCAER told FE that monetary authorities should be looking at GDP deflator that are available on a quarterly basis than headline inflation figures while deciding on policy measures. The central bank will be reviewing monetary policy on September 16.