Consumer Inflation Hits Record Low in July: What Experts Say

Mumbai: Annual consumer price inflation (CPI) in India slowed down to 3.78 per cent in July, its lowest level on record and below the 4.42 per cent annual rise predicted by analysts in a Reuters poll and the 5.40 per cent print in June.

Meanwhile, core CPI was estimated to have risen around 4 to 4.5 per cent in July from a year earlier, slowing down from around 4.85 to 5 per cent in June, according to a Reuters snap survey of five analysts and traders.

COMMENTARY:

Devendra Kumar Pant, chief economist, India Ratings & Research:

"CPI inflation at 3.78 percent in July 2015 was much below the expectation and was mainly due to sharp fall in food inflation."

"It is contradictory to daily price data released by the government. July vegetable prices have declined by nearly 8 per cent."

"IIP (industrial output) growth was led by manufacturing. Mining and electricity performed poorly in June. Consumer durable grew by 16 per cent due to base effect. Capital goods output contracted after seven months. This points towards a weak investment conditions."

Rupa Rege Nitsure, chief economist, L&T Finance Holdings, Mumbai:

"While CPI print has benefited immensely from a favourable statistical base, IIP (industrial output) print has not been in line with the trend indicated by other activity indicators."

"Today's data points are not going to have any material impact on the RBI's policy stance, which is focused on maintaining inflation at 6 per cent by January 2016."

"This may pose some challenge once the base effect starts waning from September. Other issues are, of course, the weak policy transmission and the possibility of an imminent hike in the Fed rate. RBI will stay in the zone of cautiousness."

Killol Pandya, senior fund manager, LIC Nomura MF Asset Management, Mumbai:

"There is a sharp drop in food and core inflation, much more then what we were expecting. This gives an indication that food prices are actually lower than what people were expecting even without the base affect."

"It also shows that monsoon has been good. If Fed hike gets pushed back then we can see a rate cut by RBI by the end of September."

R Sivakumar, head of fixed income, Axis Asset Management, Mumbai:

"The CPI number is significantly lower than expected. Clearly it looks like food is one significant factor on the downside. You have falling global crude prices and very minimal Minimum Support Price (MSP) increases that have enabled food prices to be very soft."

"This number is significantly below RBI's projection for this period, and if the trend continues we should see RBI marking down its year-end inflation projection."

"By the time of the next policy meeting we will have had one more reading on CPI, and if the August numbers also point in the same direction then we can expect RBI to have a significant room for rate cuts."

Sujan Hajra, chief economist at Anand Rathi, Mumbai:

"The sharp fall in food inflation has led to sharp fall in overall inflation. The core inflation is higher than the headline numbers. There is a scope for at least a 25 basis point cut in interest rates by late September."

Jyotinder Kaur, principal economist, HDFC Bank:

"The headline number is a huge positive. We were below consensus at around 4.2 per cent. The downside appears to come from food inflation which is a heartening trend."

"Along with the yuan devaluation move, I think there is a case for more (and) not less accommodation. The sooner the Reserve Bank of India steps on the easing peddle, the better it is."

A Prasanna, Economist, ICICI Securities Primary Dealership Ltd, Mumbai:

"The number is a big downside surprise, which means that CPI is in line to fall below RBI's 6 per cent trajectory by January. This increases chances of RBI cutting interest rate one more time in this fiscal year ending March."