June 12, 2019 / 12:56 PM / 3 months ago

Instant View: India's May retail inflation picks up to 3.05%

BENGALURU (Reuters) - India’s annual retail inflation picked up in May to 3.05% to hit a seven-month high, compared with revised figure of 2.99% in April, government data showed on Wednesday.

A vendor weighs potatoes for a customer (not pictured) in his shop at a vegetable market in Kolkata, India, August 12, 2015. REUTERS/Rupak De Chowdhuri/File Photo

Analysts polled by Reuters had forecast May’s annual increase in the consumer price index at 3.01%.

COMMENTARY

RUPA REGE NITSURE, CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI

“A pick up in IIP (Index of Industrial Production) growth doesn’t say much. IIP growth has been very volatile. This could be just a normalisation of partial underestimation of last month’s growth. Both consumption and investment demand are abysmally low.”

“Vegetable prices will trend higher during Monsoon season as well as due to disruption to transport. Overall, inflation will remain well within the Reserve Bank of India’s (RBI’s) target range. The RBI and the government will work in tandem to pull out the economy from the ongoing slowdown.”

SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI

“The May CPI inflation was in line with expectations and more importantly, strengthens the case for another rate cut of 25 basis points (bps) by the RBI MPC (Monetary Policy Committee) in August.”

“Core inflation has been reducing steadily which should support the case for another rate cut. However, food inflation has been inching up, but till now, does not show signs of unexpected sharp increase.”

“Prices of vegetables and pulses have been increasing and needs to be watched closely, especially in conjunction to the progress of the monsoon and the sowing pattern.”

KAPIL GUPTA, ECONOMIST, EDELWEISS SECURITIES, MUMBAI

“Core inflation ex-commodities (is) at 4.7%. Inflation trajectory is rising which is just a normalisation of food inflation specially in categories like vegetables and pulses. Outside these commodities, food inflation is quite benign. Core inflation is easing gradually so there’s comfort.”

“While inflation numbers will rise, the dynamics of inflation remain benign and it should not hinder the chances of a rate cut which we expect in the next policy.”

ANAGHA DEODHAR, ECONOMIST, ICICI SECURITIES, MUMBAI

“Both headline and core numbers are in line with our expectations. Most of the sequential increase in headline inflation is driven by rising food prices.”

“We expect food prices to continue inching up which could pose upside risk to MPC’s forecast. We expect average inflation in H1FY20 to come in at around 3.3% and H2 at 4.2%.”

“Hence, we expect inflation in FY20 to average 3.8% which is much higher than RBI’s forecast. Although there’s a strong chance of 25bps rate cut in August, rising inflation thereafter could limit further room for rate cut.”

DEVENDRA PANT, CHIEF ECONOMIST, INDIA RATINGS, NEW DELHI

“If you look at the core inflation which excludes food, energy and transport and communication, it has fallen below 4.4% which is a 23-month low. This means that demand is pretty weak. There is one more scope of a rate cut this fiscal year but that would depend on the budget in July, and factors like fiscal stimulus and monetary stimulus.”

TUSHAR ARORA, SENIOR ECONOMIST, HDFC BANK, NEW DELHI

“While food inflation has been rising, the moderation in core inflation has capped the overall inflationary pressures in the economy.”

“Whether the slowdown in domestic demand pulls down the core inflation further or the pressure on food further weighs during the summer months, will be an important trend to watch out for in the next few readings.”

“The likelihood of moderation in core inflation is higher and thus, we believe that overall inflation would remain subdued, allowing the central bank to cut the policy rate yet again.”

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

“IIP growth came ahead of expectations. But given the inherent volatility of monthly numbers, this substantially does not change the subdued outlook for H1FY20.”

“We think the government would continue to focus on growth through different measures, including tax cuts and increased welfare related spending. RBI, too, would maintain accommodative liquidity and interest policy stance.”

Reporting Chandini Monnappa, Chris Thomas and Arnab Paul in Bengaluru; Editing by Rashmi Aich

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