Consumer Inflation Accelerates To 2.36% In July
Economists polled by Reuters had expected July retail inflation at 1.87% Wholesale inflation rose 1.88% in July, pushed up by food prices WPI inflation reversed trend seen in past four months
Consumer or retail inflation quickened to 2.36 per cent in July, compared with an increase of 1.46 per cent in June, as a decline in food prices slowed sharply. The July inflation number is higher than the market's expectations. Economists polled by Reuters had expected July consumer inflation to come in at 1.87 per cent. Data released earlier in the day showed wholesale price inflation accelerating, reversing the trend seen in the past four months, with food prices back on the rise. The wholesale price index rose 1.88 per cent in July from a year earlier.
Economists say that the uptick in inflation means that RBI will have limited room to cut rates currently. Anjali Verma, economist at PhillipCapital India, said: "We expect vegetable prices to remain high even in the month of August. This, in turn, is taking the entire trajectory on the higher side and therefore reducing the chances of another rate reduction by RBI. Also, the base effect will worsen towards the end of the financial year, so that will take the number higher."
Tirthankar Patnaik, India Strategist at Mizuho Bank, said: "There is very limited scope for the RBI to cut rates at the moment given the turnaround in inflation rate."
Easing price pressures gave the Reserve Bank of India (RBI) room to cut its main policy rate by 25 basis points to 6 per cent earlier this month - the lowest since November 2010. It was the first rate cut by an Asian central bank this year. But the RBI retained its "neutral stance" and warned inflation could pick up again. The RBI expects retail inflation could accelerate to 3.5 per cent to 4.5 per cent in October-December.
The government called on Friday for more rate cuts as it flagged risks to economic growth and Budget targets. In his mid-year Economic Survey, Chief Economic Adviser Arvind Subramanian had said there were downside risks to the official growth forecast of 6.75-7.5 per cent for the fiscal year to March 2018. Industrial output contracted 0.1 per cent in June from a year earlier, data showed on Friday.
In his report, Dr Subramanian said there was a considerable scope for monetary easing as the inflation was undergoing a "structural shift".
(With agency inputs)