Inflation falls to 6.78% from above 7%
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New Delhi, Aug 12: Retail inflation in India likely eased in July as food and commodity prices cooled but remained above the 6% upper limit of the central bank’s tolerance range for the seventh consecutive month, a Mint survey of 28 economists projected.
The survey’s median estimate showed inflation is expected to slow to 6.78% in July from 7.01% in June, slowing for the third straight month, convincing many economists that inflation has probably peaked. Predictions in the poll ranged from 6.50% to 6.91%. The official inflation data for July will be released on Friday.
“While the moderation in inflation levels in May and June—after a peak of 7.8% in April—is partly attributable to base effects, the July print will be primarily driven by a drop in food prices," said Kanika Pasricha, an economist at Standard Chartered Bank. Inflation remained above 7% across all the months in the June quarter due to high food and commodity prices. The trend has forced the six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) to lift the benchmark repo rate by a total of 140 basis points over its last three meetings since early May.
But the estimates for July show that India’s inflation problem seems to have bottomed out sooner than the MPC thought. At its latest meeting earlier this month, RBI retained inflation projections for FY23 at 6.7% and estimated inflation to average 7.1% in the September quarter. “There is more evidence that inflation in India has peaked for now, and it is likely to slow faster than RBI’s published trajectory, coming into the target band by October, according to our latest tracking estimates," said Rahul Bajoria, chief economist at Barclays, in a report dated 3 August.
Still, economists anticipate that despite inflation falling for the third month in a row, RBI will keep hiking rates for a while. Recently, finance minister Nirmala Sitharaman said the government will continue to monitor price pressures and will not be afraid to use tools other than a monetary policy if necessary. Rupa Rege Nitsure, the chief economist at L&T Finance Holdings, expects core inflation, which excludes food and fuel, to slow to 5.86% in July from 6.22% in June.