admin
India’s retail inflation accelerated in July, led by higher food prices, to a pace that is still unlikely to push the central bank to hike interest rates over the next few months.
The consumer price index rose 4.45 per cent from a year earlier in July, marking a second consecutive month above the Reserve Bank of India’s 4 per cent medium-term target and nearly in line with a Reuters poll that had estimated inflation at 4.5 per cent.
The July print is however well within the RBI’s 2 per cent to 6 per cent tolerance band.
The central bank left its benchmark policy rate unchanged last week, awaiting clearer evidence on whether inflationary pressures had become broad-based in Asia’s third-largest economy, making India an outlier among regional peers such as Indonesia and the Philippines that have raised rates in response to higher energy prices and currency volatility.
“The RBI can afford to be patient for now, but not forever,” said Alexandra Hermann Prasad, lead economist at Oxford Economics.
“Mounting evidence of second-round effects and rising medium-term inflation expectations will make the supply shock increasingly difficult to look through. We expect policymakers to hold fire in October, but to deliver a 25 basis point rate hike in December.”
India’s food inflation climbed to 5.52 per cent in July from 5.32 per cent in June, on the back of weak monsoon showers, with sharp increases in ginger, garlic and onion prices offsetting declines in tomato prices.
Food inflation is expected to ease with a recovery in rains that could mitigate further price pressures from the impact of the El Nino weather phenomenon.
RBI Governor Sanjay Malhotra said earlier this month that headline inflation moved above target mainly because of higher fuel prices, while broader price pressures remained in check. The central bank has cut its headline inflation forecast for 2026/27 by 10 basis points to 5 per cent.
India’s state-run fuel retailers raised gasoline and diesel prices four times in May in response to rising costs due to the US-Iran war. While a brief pause in the conflict pushed global crude prices lower, they were still about 27 per cent above pre-war levels in July.
Economists said that while the price of crude was volatile during the month, the absence of any meaningful revision in domestic retail fuel prices would limit the impact on consumers — India is the world’s third-largest importer of the commodity. Transport inflation ticked up to 4.43 per cent in July from 4.31 per cent in June.
“Going forward, we continue to expect inflation to rise above 5 per cent from September onwards, keeping the case alive for RBI to turn towards (an) interest rate hike before the end of the year,” said Sakshi Gupta, principal economist at HDFC Bank.
Core inflation, which excludes volatile food and fuel components and better reflects underlying demand, stood at 3.9 per cent in July, against an expectation of 4.08 per cent, according to India Ratings and Research. India does not release an official core inflation figure, which is instead calculated by financial analysts using granular data released later by the statistics ministry.
GIPHY App Key not set. Please check settings