Retail inflation moderated to 6.7% in July, another round of rate hike expected

Retail inflation based on the Consumer Price Index (CPI) slowed to a 5-month low of 6.71 percent in July from 7.01 percent in June. However, it is above the upper band of the inflation target range (2-6) percent which has sparked expectations of another rate hike.

Meanwhile, the rate of industrial growth based on the Index of Industrial Production (IIP) slowed slightly to 12.3 percent in June from 19.63 percent in May.

Retail inflation

The impact of low food prices on general inflation. It would have been much lower, had fuel inflation not risen by more than 1.5 percent month on month. Moreover, some food items such as cereals and wheat show higher magnification.

Despite the decline in global prices of raw materials and foodstuffs, the irregular monsoon creates some concern. At the same time, new geopolitical tensions due to tensions between China and Taiwan add to concerns.

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“Going forward, we now expect the inflation trajectory in India to moderate. CPI numbers for March 23 could be less than 5 per cent,” the SBI said in its research report, prepared by the group’s chief economic advisor, Soumya Kanti Ghosh. While crude oil has shown signs of abating and thus calming inflationary concerns at the domestic level, we are in the paradoxical situation where the inflationary trajectory may not have a cascading effect on runaway exchange rate dynamics as sentiment in the South China Sea can guide erratic global sentiment.

Also, US inflation numbers are likely to dip lower even though the core of inflation may remain elevated.

dollar effect

“Appreciating the US dollar could lead to imported inflation pressures in India leading to a slower correction in the CPI reading, this remains an upside risk. In an evolving situation, the repo rate will tend to be 6 per +/- 25 basis points By the end of fiscal year 23, the report said.

India Ratings & Research (Ind-Ra), in a note written by Sunil Kumar Sinha and Paras Jasrai, said it believes the fundamental impact will remain unfavorable until October and will continue to put pressure on inflation. The impact of monetary policy on inflation generally appears in a six- to nine-month gap.

“The decline in the trend of inflation is undoubtedly good news for the monetary authority, and Ind-Ra believes that further rate hikes may continue depending on the data in the rest of FY23. As it stands now, Ind-Ra is considering another increase of 1. 25-50 basis points at the repurchase price in fiscal ’23,” the note read.

industrial growth

At the industrial sector level, electricity and manufacturing posted strong growth of 16.4 percent and 12.5 percent, respectively, in June. The mining sector grew by 7.5 percent in the same period. Double-digit annual growth of 12.7 percent in the April-June quarter indicates that the industrial recovery remains on track despite global headwinds or uncertainty.

Aditi Nayar, Chief Economist at ICRA, said, “Given the moderation in annual performance recorded by most of the high-frequency indices in July, such as electricity generation, non-oil exports etc., we expect international investment growth to fall to high single digits. In that the month “.

Rajani Sinha, chief economist at CARE, feels the improved performance of non-durable consumer goods after seeing modest growth in previous months is an encouraging sign.

“Going forward, we expect consumer demand to improve further ahead of the festival season. However, higher global commodity prices, slowdown in global economies and high inflation are expected to be the main downside risks to industrial growth momentum.