India’s consumer inflation probably rose in July, surpassing the Reserve Bank of India’s 4% target for the second consecutive month, driven by persistent food price pressures and stable fuel costs, according to a Reuters poll of economists.
India’s consumer inflation probably picked up in July, keeping price growth above the Reserve Bank of India’s 4% medium-term target for a second straight month, according to a Reuters poll of 40 economists. The survey, conducted from August 5 to 7, put annual consumer price inflation at 4.50%, compared with 4.38% in June, when retail inflation first moved above the target in 17 months. Economists also see inflation staying inside the RBI’s 2% to 6% tolerance band, even as food costs continue to exert pressure.
The main driver remains food. Uneven rainfall has weighed on farm output in parts of the country, adding to supply concerns in a nation where households spend more than 40% of their budgets on food. Kanika Pasricha, chief economic adviser at Union Bank of India, told Reuters that food inflation is still trending higher even though underlying price pressures remain contained. She said July’s improvement in monsoon activity may have helped crop conditions, but it did little to ease near-term shortages.
Fuel prices are another factor, though probably a smaller one than in June. Pasricha said the absence of any significant change in domestic retail fuel prices should limit the pass-through to consumer inflation. India’s state-run fuel retailers raised petrol and diesel prices four times in May after higher costs linked to the U.S.-Israeli conflict with Iran, and even after a temporary easing in the fighting, crude prices remained well above levels seen before the war.
The RBI held interest rates steady this week, as expected, while warning about weather-related risks and volatility in global energy markets. The central bank expects inflation to average 5.0% in the current financial year, down from an earlier 5.1% forecast, though that is still above the 4.8% figure forecast in a Reuters survey last month. Economists also expect wholesale price inflation to have stayed elevated in July at 9.95%, broadly unchanged from June, while core inflation, which strips out food and fuel, is seen at 4.08%.
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