Retail inflation at 1.54% in June, lowest in 5 years
LOWER EMIS? Economists expect RBI to cut rates in its policy review on Aug 2
India’s annual retail inflation eased in June to its slowest pace in more than five years, as food prices fell, building pressure on the central bank to cut interest rate when it meets for a monetary policy review on August 2.
The consumer price index rose 1.54% in the 12 months through June, down from an increase of 2.18% in the previous month and slower than the forecast of economists in a Reuters poll, data released by the Ministry of Statistics showed on Wednesday.
Economists in a Reuters poll had predicted inflation to ease to 1.7% last month.
This is the lowest inflation rate since India started releasing retail inflation data in January 2012 based on a combined CPI index for rural and urban consumers.
“The numbers that are at a historic low, were last seen in the year 1999, and then before August 1978. So, this unusually low number is consistent with our analysis, and we will fully elaborate on this on our fourth coming survey,” chief economic adviser Arvind Subramanian while addressing the media.
Elsewhere in Asia, China’s annual consumer prices remained subdued at 1.5% in June.
With headline inflation remaining below the Reserve Bank of India’s mid-term target of 4% for the past eight months, industry participants and the government have sought a cut in interest rates to support economic expansion.
Economists expect that the central bank to cut interest rates 15 10 5 0 5 10 IIP Apr 2016 Consumer durables in its next policy review.
“We do expect a rate cut of 25 basis points in the August policy,” said Anjali Verma, an economist with Phillip Capital India. “Unless there is some major disappointment in the monsoon, I don’t see any upside risk to inflation by March 2018.”
The economy grew at an annual 6.1% in January-March quarter, the weakest growth since late 2014, mainly due to demonetisation.
Some analysts, though, say an increase in charges of services after the launch of a new tax system this month, could push up core inflation, which excludes food and energy prices, and has remained stubbornly stayed (in %) May 2017 10 8 6 4 2 0 2 4 CPI Apr 2016 above 4% for years.
Separately, the index of industrial production (IIP) grew 1.7% in May from a year earlier, data showed. The pace of expansion, however, was slower than a revised 2.8% annual rise in April and compared with a 1.9% growth forecast by economists in a Reuters poll.
Data further revealed that output of the capital goods segment, considered as key indicator of investment, shrunk 3.9%, compared to a high growth of 13.9% recorded in May 2016.
The consumer durables segment too witnessed a decline.
While mining sector output declined 0.9% in May against a growth of 5.7% a year ago, while CPI-food (in%) Jun 2017 manufacturing sector slowed to 1.2% from 8.6% in the same month last year.
Analysts say expected good rains this year could lead to bumper grain production and a further slide in food prices in Asia’s third-largest economy.
Retail food prices fell 2.12% last month from a year ago, compared with a 1.05% fall in May. Falling food prices present a worry for the government because of the hit on millions of farm households. The RBI expects retail inflation to come in a 2.0-3.5% range for the first half of 2017-18 and 3.5-4.5% in the second half, down from 4.5% and 5.0%, respectively.
REUTERS AND IANS