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Preview - Inflation cooled in July; June factory output picked up
August 12, 2015 / 5:32 AM / 2 years ago

Preview - Inflation cooled in July; June factory output picked up

BENGALURU (Reuters) - India’s retail inflation likely cooled in July as food price rises stayed in check, while factory output grew slightly faster in June, a Reuters poll found this week.

People shop at an open air vegetable and fruit market in Ahmedabad, June 12, 2015. REUTERS/Amit Dave/Files

Over the last 19 months, inflation in India has halved from double-digit levels to below the Reserve Bank of India’s 6 percent target, giving the bank room to shave 75 basis points off its key repo rate this year.

But economists and the RBI have warned of the risk of a temporary spike in food prices due to poor monsoon rains in a country where around a quarter of the population lives on 74 U.S. cents per day.

So far, those fears are unfounded according to the survey of over 30 economists. The poll’s median showed consumer price inflation likely eased to 4.42 percent in July from 5.40 percent in June.

“Rainfall so far has not been as weak as many had feared, and the government’s ample stockpile of crops should help to keep food inflation in check,” wrote Shilan Shah, India economist at Capital Economics.

But the India Meteorological Department has forecast a drought in August and September. That could push the cost of food higher and cause the RBI to pause its policy-cutting cycle.

Consumer price rises hit an eight-month high in June, prompting the RBI to hold rates at 7.25 percent in August. The bank is likely to cut once more before the end of the year, a slim majority of economists in a separate Reuters poll said.

Should the consensus for July’s retail inflation rate prove correct, it would be the second lowest on record. But many economists in the poll cautioned against reading too much into the data as statistical base effects played a major role.

“Last year around this time there was a big spike in food prices and, in general, the overall CPI. As a result, even a modest movement this time will lead to a significant softening in the trend,” said Siddhartha Sanyal, chief India economist at Barclays.

Analysts in the survey also predicted industrial output growth gathered pace in June, mainly due to a pick up in government spending, rising to 3.5 percent from May’s 2.7 percent.

Still, India’s economy is expected to grow only 7.6 percent in the fiscal year ending in April 2016, compared to 7.3 percent last year, due to delays in implementing key fiscal reforms.

Reporting by Aaradhana Ramesh; Additional Reporting by Shaloo Shrivastava; Polling by Khushboo Mittal; Editing by Kim Coghill

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