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Consumer Inflation Eases To 10-Month Low Of 3.69% In August

Food inflation stood at a provisional 0.29 per cent in August, as against 1.30 per cent in the previous month.

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Consumer inflation had stood at 4.17% in the previous month

Highlights

  1. Retail inflation below RBI's medium-term target of 4%
  2. Inflation data better than expectation of 3.86%
  3. Central bank seen holding key lending rates in October policy review

Consumer inflation eased to 3.69 per cent in August, from 4.17 per cent in the previous month, government data showed on Wednesday. That marked the lowest level of CPI inflation recorded since October 2017, when it was at 3.58 per cent. Wednesday's data also showed that retail inflation - determined by Consumer Price Index (CPI) - stood below the Reserve Bank of India's medium-term target of 4 per cent for the first time in 10 months. Latest data fuelled expectations of a status quo on key interest rates in the next central bank policy review due in October. Economists in a poll by news agency Reuters had predicted retail inflation at 3.86 per cent.

Food inflation stood at a provisional 0.29 per cent in August, as against 1.30 per cent in the previous month, the Central Statistics Office said in its statement.

Separate data showed that industrial production, determined by the Index of Industrial Production (IIP), slowed down to 6.6 per cent in July, from 7 per cent in the previous month. Industrial output growth, or factory activity growth, is determined by the Index of Industrial Production (IIP).

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The data came at a time the rupee hit record lows amid weakness in emerging market peers and the domestic equity markets are struggling with fund outflows. Besides, a continued surge in crude oil prices has fuelled concerns on the current account deficit front among investors.

"While weakness in the rupee adds to the upside risk, factors such as still sanguine domestic food prices and moderation in global commodity prices (excluding oil) is likely to provide some relief," said Garima Kapoor, economist and vice-president, Elara Capital. (What economists say)

"CPI inflation has so far remained well within RBI's projected trajectory. However, concerns are building with respect to rupee depreciation and a rate hike could provide some support to the currency." The Reserve Bank of India (RBI) had in its August policy review projected consumer inflation at 4.6 per cent in the second quarter, and 4.8 per cent in the second half of 2018-19.

Crude oil prices have risen nearly 15 per cent this year while the rupee has depreciated 13 per cent against the dollar. The rupee receded from recent record lows and closed at 72.19 against the dollar. Still, it is the worst performing Asian currency this year.

The current account deficit - or the difference between the inflow and outflow of foreign exchange - widened to $15.8 billion in April-June from $15.0 billion in the corresponding period a year ago.

Credit ratings agency Moody's expects the country's current account deficit to widen to 2.5 per cent of the GDP in the current fiscal year due to higher oil prices that have been accentuated by rupee depreciation.

The trade deficit, or the gap between exports and imports, had widened to an over five-year high of $18 billion in July. Trade shortfall puts pressure on the current account deficit.

The central bank has increased the repo rate - the key rate at which it lends short-term funds to commercial banks - in its previous two bi-monthly policy meetings.

(With agency inputs)

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