World Economy

India August Inflation at 5-Month High

India August Inflation at 5-Month HighIndia August Inflation at 5-Month High

Retail inflation is expected to have picked up to a five-month high in August, largely driven by higher food costs, a Reuters poll showed, easing pressure on the central bank to cut interest rates again after poor growth data.

Consumer prices were forecast up at 3.20% in August from a year ago, jumping from July’s 2.36%, according to the poll taken September 5-8 of nearly 40 economists. Forecasts for the data, scheduled to be released on September 12, ranged from 2.50% to 3.55%.

If the consensus is met, it would be the highest since April, but below the Reserve Bank of India’s medium-term target of 4% for the tenth consecutive month.

Tushar Arora, economist at HDFC Bank, said food prices continue to rise in August, mainly driven up by “unfavorable weather conditions and supply chain constraints.” Food and beverage inflation, which accounts for nearly 50% of the consumer price index basket, was expected to have rebounded in August after prices fell in the three previous months.

Monsoon rains this year have caused damage to crops of some perishable food items and hindered movement of goods. The resulting hit from a shortage of production and supply of vegetables such as tomatoes and onions—basic ingredients in the kitchen—suggests inflation will be elevated in coming months.

“Looking beyond the forthcoming data for August, price pressures are set to rise further,” said Shilan Shah, economist at Capital Economics.

Wholesale prices were expected to rise 3% last month from a year ago, from 1.88% in July, the poll forecast.

Early last month the Reserve Bank of India cut interest rates—making it the first Asian central bank to ease this year—on a subdued economic outlook. But rising price pressures will complicate the RBI’s policy path as the latest data for April-June quarter showed economic growth cooled to a three-year low.

 “We do not see significant room for monetary policy accommodation given the fact that rates are near their all-time low and inflation is now on a rising trajectory,” said Teresa John, an economist at stock brokerage Nirmal Bang.

Separately, the poll also predicted industrial output rose 1.2% in July after contracting in June, despite disruptions caused by a new goods and services tax.

Add new comment

Read our comment policy before posting your viewpoints