The retail inflation, as measured by the consumer price index, for the month of August is expected to rise on the back of a surge in food prices during the period, though still remaining below the Reserve Bank of India’s medium term target of 4 per cent. A Reuters poll of 40 economists predicted the August CPI inflation to climb to 3.2 per cent. A DBS Research note this morning said the bank expects the inflation to quicken to 3.4 per cent — a four-month high mainly due to the surge in the food prices, especially vegetables. The data is due later on Tuesday.
The consumer prices have gone up due to unfavorable weather conditions and the shortage of supply of vegetables, according to Reuters. The higher inflation will ease the pressure on the central bank to cut the interest rates in its decision scheduled on October 4. Housing inflation and higher domestic fuel prices are also likely to extend in the month of August.
In July, the retail inflation was chiefly driven by hardening of prices in sugar and confectionery items, pan, tobacco, and intoxicants. The RBI had then cut interest rates on the subdued economic outlook, which had hit a three-year low. Meanwhile, a RBI note said that the farm loan waiver by seven states amounting to Rs 88,000 crore is likely to push inflation on a permanent basis by 0.2 per cent, PTI reported on Tuesday.
While inflation is expected to rise, the industrial production (IIP) for the month of July would recover ground to 1.3 per cent from June’s -0.1 per cent YoY, but would also reflect GST-driven distortions, DBS research notes. The IIP data is also due later on Tuesday.
The core industries sector is also expected to improve due to broad destocking exercise in June but would remain weaker than last year’s 4.6 per cent. The trend growth in Apr-Jul was 1.8 per cent this year, DBS added. “Food prices will be responsible for a large extent of the jump, alongside a modest lift from the housing component. Seasonal effects and supply shortages are likely to underpin the food index, especially vegetables,” DBS said in a statement on Tuesday.