Economy
India inflation may remain steady at 3.5Percent: Mint poll
Summary
While the country's inflation was likely below the Reserve Bank of India's medium-term target of 4% for the second consecutive month in August, it was driven mainly by the base effect.
India’s retail inflation is expected to have been steady at 3.5% in August mainly on account of the statistical effect of a favourable base, according to a Mint poll of 27 economists. Inflation was 6.8% in August 2023.
While inflation would be below the Reserve Bank of India’s medium-term target of 4.0% for the second consecutive month, economists have cautioned against drawing conclusions based on the current trajectory.
Economists’ projections ranged from 3.2% to 4.0%. The official data will be released on 12 September. Should inflation come in at 3.5%, the average for July-August will be significantly lower than RBI’s projection of 4.4% for the July-September quarter.
Food inflation, which constitutes nearly 40% of the inflation basket, has remained elevated for a long time now. However, a mix of moderation in prices and a favourable base effect is bringing it down. Kanika Pasricha, chief economic advisor at Union Bank of India, expects food prices to record a broad-based month-on-month decline for August.
However, the August data may become insignificant from the policy standpoint due to the base effect. The trajectory for food inflation, which tends to influence headline inflation significantly, may depend on the rainfall.
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“The focus will remain onSeptember rainfall to assess the outlook for food inflation. While sowing has been good for major crops, the India Meteorological Department has forecast higher-than-normal rainfall in September; this could adversely impact standing crops," said Anubhuti Sahay, head of India economic research at Standard Chartered Bank.
Even RBI's Monetary Policy Committee (MPC) noted at its rate-setting meeting last month that the moderation in inflation was uneven and “adverse climate events remain an upside risk to food inflation".
“In the absence of weather shocks, we expect the MPC to gain conviction that inflation will stay benign on a sustainable basis," Sahay said. “If inflation remains subdued, the MPC may start a shallow rate-cutting cycle in December 2024."
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