July 12, 2019 / 12:34 PM / 2 months ago

Instant View: India's retail inflation hits 8-month high in June

MUMBAI/BENGALURU (Reuters) - India’s retail inflation rate hit an eight-month high in June on higher food prices, government data showed on Friday, but stayed below the central bank’s medium-term target of 4% for an eleventh straight month. Annual retail inflation in June was 3.18%, up from 3.05% in the previous month, but below analyst forecasts.

A vegetables shop is pictured at a market area in Mumbai, India, September 12, 2018. REUTERS/Francis Mascarenhas

A Reuters poll had predicted a retail inflation rate of 3.20% for June.

Meanwhile, data showed the country’s industrial output climbed 3.1% in May from a year earlier, but lagged forecast.

DEVENDRA PANT, CHIEF ECONOMIST, INDIA RATINGS, NEW DELHI

“This is not a good situation for the economy, with core inflation declining, reflecting weaker demand conditions at a time when industrial growth is barely picking up.”

“Inflation remaining below 4% for an 11th consecutive month is good news for the RBI - odds are in favour of a 25bp rate cut. However, chances are that a rate cut now is unlikely to spur growth significantly in the short to medium term.”

SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI

“The upside to inflation has been primarily driven by perishable and protein-related items. Beyond the seasonal increase, we think food prices should not play spoilsport.”

“A good start to monsoon in July is a positive for sowing as the month accounts for more than half of the total sowing for the season. Should this trend in monsoon continue, the sowing deficit will likely narrow further.”

“The rise in food prices is positive from rural purchasing power perspective and should be supportive of demand conditions.”

“Indicative of persistent softness in demand, core CPI eased yet again to a 23-month low of 4.09% in June. We think this trend is likely to continue for the next few prints.”

SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI

“June CPI inflation at 3.18% was in line with our expectation of 3.1%. The food inflation momentum remains as expected and gives a fair bit of comfort on the headline trajectory remaining around the 4% mark within a 12-month horizon.”

“Core inflation at 4.1% continues to indicate a downward trend and in line with the slack in the economy.”

“The print reinforces our view that the RBI will most likely cut the repo rate by 25 bps in the August policy with inflation remaining comfortable, budget indicating that the government is keen on achieving the fiscal consolidation path, monsoon starting to pick up, and overall growth slowdown being the greater concern.”

ADITI NAYAR, PRINCIPAL ECONOMIST, ICRA LTD, GURUGRAM

“While vegetable prices are likely to firm up this month on seasonal factors as well as higher transport costs, the pickup in monsoon rainfalls last week is likely to boost sowing in the near term, which would help to keep food inflation in check.”

“Although the recent uptick in crude oil prices has been offset by INR appreciation, the increase in duties and cesses on fuels introduced in the Union Budget would have a modest first and second round impact on retail inflation.”

“The shrinking of the monsoon deficit has allayed some concerns regarding the trajectory of food prices. However, the sustainability of the hardening in crude oil prices needs to be watched. At present, we expect CPI inflation to remain comfortably below the MPC’s target of 4% during Q2 FY2020.”

“Although transmission of the previous rate cuts remains incomplete, the MPC may choose to front-load another rate cut to provide a boost to the outlook for economic growth.”

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

“CPI inflation has come in much below market expectations despite sequential spikes in the prices of vegetables, pulses, edible oils, etc. This is primarily on account of a crash in core inflation from 4.25% in May to 4.11% in June. This reflects underlying weakness in demand and is supportive of the RBI’s easy monetary policy stance.”

“Weaknesses in manufacturing activity, especially in capital goods and consumer durable goods production, is weighing on industrial growth.”

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

“The broad trend is that consumer price inflation remains rangebound. Food inflation trend is upwards, while core is downwards, so the overall outlook on inflation is benign. The RBI will continue to maintain its accommodative stance and could do another 25-50 basis point rate cuts in this financial year.”

Reporting by Swati Bhat in Mumbai and Krishna V Kurup and Chris Thomas in Bengaluru; Editing by Subhranshu Sahu

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