India’s retail inflation likely inched up to 2.2% in August from 1.6% in July, driven by a modest rise in prices of select food items, even as low overall food inflation is expected to keep it near the lower end of Reserve Bank of India’s (RBI’s) inflation-target band, a Mint poll of 17 economists showed.
Economists polled expect consumer price index (CPI) inflation to range between 1.7% and 2.5%. The official data will be released on 12 September.
Madan Sabnavis, chief economist at Bank of Baroda, noted that while prices of tomatoes and onions saw an uptick, the overall number is likely to remain moderate, supported by a favourable base and subdued food inflation.
Food, which accounts for nearly 40% of the CPI basket, has been the main factor pulling headline inflation down in recent months, even slipping into deflation in June and July. Any rise in certain food items is expected to be largely offset by easing prices of vegetables, pulses, and spices, economists said. Yet, risks to food inflation remain. Heavy rain and floods could damage crops and push prices up, even as recent goods and services tax (GST) cuts are expected to ease costs.
“Markets would be focused on inflation prints for October and beyond, as it will capture the impact of GST reductions—a complete pass-through of lower rates can reduce CPI by 100 basis points,” said Anubhuti Sahay, Standard Chartered Bank economist. “But we will need to await more clarity on food prices due to heavy rains and flooding in several parts of the country.”
Earlier, RBI had expected inflation to breach its medium-term 4% target by the fourth quarter of the current fiscal. But GST rate cuts may lead to a downward revision in the projections. Despite the moderate inflation outlook, economists do not expect RBI to deliver another rate cut soon, given the frontloading of cuts in June and strong GDP growth of 7.8% in April-June.