MUMBAI (Reuters) - India’s annual consumer inflation in August jumped to a five-month high of 3.36 percent from a year ago, driven by higher food prices, according to government data on Tuesday.
The rise was higher than the 3.20 percent forecast by economists in a Reuters poll. Inflation rose to 2.36 percent in July, after falling for three straight months.
ABHISHEK UPADHYAY, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI
”Inflation is largely in line with assumptions, but the key takeaway is the spike higher in core inflation to 4.6 percent.
”Centre HRA (housing rent allowance) hike is a driver, but GST influence has clearly been inflationary, in line with our view.
”That impact continues to play out in health, personal care and textiles. Interplay of these drivers coupled with adverse base could push inflation beyond 4 percent within this calendar year.
”But from a monetary policy perspective, the renewed move higher in core inflation is of greater consequence, particularly because it is not just on account of the technical HRA hike impact.
“In the context of growing risks of fiscal breaches, and with developed market central banks geared to remove accommodation as well, we continue to view a long pause from the MPC (monetary policy committee) as the most likely outcome.”
”August CPI was in line with our expectations at 3.4 percent YoY, driven by the usual suspects, i.e. food pressures, along with higher housing and transport inflation.
”On sequential basis, such vegetables-driven uptrend usually dissipates towards Oct-Nov and we expect this to pan out this year as well.
“Higher core (inflation) and August headline inflation on the higher end of the central bank’s 2-3.5 percent target for 1H FY18 will douse any lingering expectations for an October rate cut.”
”Apart from food and fuel all other factors contributed to the month-on-month increase in inflation with housing driving the rise.
”Overall inflation is walking along the indicative path with no unanticipated surprise shocks on the upside expected.
”Core inflation has gone up due to the government salary hikes which have started to seep into the housing index.
“It is critically important that the food economy is managed so that overall CPI remains in control. We do not expect any rate cuts in October.”
ASHTOSH DATAR, ECONOMIST, IIFL INSTITUTIONAL EQUITIES, MUMBAI
“Inflation data is higher than my estimate for sure. Food has driven (it) up, as expected”
“A rate cut can be expected before the end of this year if the core inflation has not risen. But (the repo rate) will be on hold if it has risen.”
“Will stick to FY18 average CPI estimate of 3.5 percent for now.”
“For inflation projection going ahead, the main risk is food inflation and how it shapes up given the extremely low levels we have currently.”
HITESH JAIN, SENIOR RESEARCH ANALYST, IIFL WEALTH MANAGEMENT, MUMBAI
”We’re going to see a spike in most food commodities in the next two to three months, which will lead to a rise in overall headline inflation. It is very much in line with RBI expecting inflation to move higher.
”There’s no major inflation risk as industrial commodities prices have moved higher, oil still remains low and food inflation will move higher. I think the overall headline inflation will not breach the overall tolerance level of RBI.
“We are of the opinion that RBI will not deliver any rate cut this calendar year.”
”I think there were still a few people who were expecting rate cuts to come through. But I think with this (data), it may not happen.
”We are maintaining that there is no scope for further rate reduction. Core CPI going ahead is going to be 4 percent-plus. We are looking at a range of 4-4.5 percent.
“The main risk points one needs to watch out for inflation projections going ahead are largely fuel and commodity prices.”
Reporting by Suvashree Dey Choudhury, Abhirup Roy, Jessica Kuruthu, and Vishal Sridhar; Compiled by Rafael Nam