MUMBAI (Reuters) - India’s annual consumer price inflation eased further to 2.18 percent in May, driven down by cooling food prices, government data showed on Monday.
The rise was lower than the 2.60 percent forecast by economists in a Reuters poll, and was the lowest since India started publishing an economy-wide consumer price index in 2012. Consumer prices rose 2.99 percent on year in April.
A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI
”May CPI inflation undershot our expectations as both food inflation and core inflation softened. Data over past few months suggest that the normal seasonal patterns in food inflation have gone haywire even as underlying inflation has softened in-line with signals seen in various core gauges.
“As such, inflation is on track to undershoot the MPC’s (monetary policy committee‘s) 4 percent target by March 2018. Accordingly we now expect the MPC to cut its policy rate by 25 bps in the August policy. However, we do not expect a deeper rate cut or further rate cuts as inflation is close to bottoming out.”
”Further, several uncertainties like GST and higher allowances to government employees may pose upside risks to inflation.
”Moreover, consolidated fiscal deficit may be on the rise due to fiscal laxity at the state government level where rural distress is morphing into doles to farmers.
“Lastly, as the latest print in the new IIP (industrial output) series has shown, the economy is recovering after a slowdown in H2FY17. Once the GST implementation is underway, we expect further traction in the economic recovery.”
”Inflation is reasonably lower than my expectation as well as consensus.
”First-half data anyways is expected to be more comfortable than what RBI has been targeting. Second-half inflation is expected to move up to 4 percent. Since there is no clarity on how RBI is going to respond to that we are maintaining status quo in terms of the policy rate.
“At the moment it does not look like there is reasonable upside risks to inflation, unless monsoon really disappoints and the farmers’ agitation takes another level.”
”The inflation number was a surprise on the downside as food inflation eased sharper than expected. This reiterates our view of a August rate cut by the RBI.
”Inflation is expected to be an average 2.2 percent during May-July, and beyond July, upside risks will depend upon the timing of distribution of the government pay hike allowances, but we don’t expect a significant impact on inflation.
“Recovery in consumption demand on normal monsoon is expected to narrow excess capacity going ahead, but it is unlikely to have any strong impact on pricing power.”
”The numbers are in line with expectations and I expect a 25 bps rate cut in August and at least 50 bps cut by the end of the year.
“Risks are pretty balanced and more to the downside, and I agree with RBI’s inflation trajectory, which RBI put out in the last policy.”
SAMRAT DASGUPTA, CEO, ESQUIRE CAPITAL INVESTMENT ADVISORS, MUMBAI
“I think the chances of a rate cut is very high. Now RBI does have a lot of room for rate cuts: at least a 25 basis points rate cut should happen in August.”
”If the monsoon is good and there are no hikes in MSP (minimum support prices), the food inflation will be under control and we don’t see too much rise in demand for goods.
“We expect inflation to be around 2 pct for the next two months.”
“RBI had indicated that inflation in first half would be between 2.5 - 3.5 percent and this is lower than that also. This clearly shows that the risk is on the downside.”
“This opens up scope for a rate cut in August.”
Reporting by Suvashree Dey Choudhury, Abhirup Roy, Arnab Paul, Tanvi Mehta, and Krishna V Kurup; Compiled by Rafael Nam