August retail inflation in India accelerates to 7% yoy as food prices rise

A worker carries a sack of onions at a wholesale market in Kolkata, India, December 14, 2021. REUTERS / Rupak De Chowdhuri

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BENGALURU, Sept. 12 (Reuters) – Indian retail inflation rose to 7% yoy in August, driven by soaring food prices, increasing pressure on the central bank to further hike interest rates by the end of the year. end of the month.

The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) raised the benchmark repo rate (INREPO = ECI) by 140 basis points from May to 5.4%, including 50 basis points last month, with the aim to curb consumer demand. Read more

COMMENT

VIVEK RAthi, RESEARCH DIRECTOR, KNIGHT FRANK INDIA, MUMBAI

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“Inflation levels in the economy remain high despite a significant drop in the price of crude oil from its recent highs. Rising food prices, the level of domestic fuel prices and pressure on the Indian currency continue to pose a threat. short-term for the inflation trajectory.

“These will also drive forthcoming monetary policy action, which so far has already seen three policy rate hikes and liquidity tightening measures over the past five months.

“However, strong sentiment on both the business and consumer fronts highlights economic resilience, which national and global business participants are expected to take note of for their plans for India.”

UPASNA BHARDWAJ, HEAD ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

“CPI inflation was slightly below expectations. The 2QFY23 average continues to be high but perhaps slightly below the RBI’s 7.1% estimate. We expect MPC rate hike 35bps in the next policy.” .

PRITHVIRAJ SRINIVAS, HEAD ECONOMIST, AXIS CAPITAL, MUMBAI

“The CPI for August was above our expectations (6.7%), largely driven by foods such as legumes and wheat. We have already seen the government announced export restrictions on wheat flour and, more recently, for rice, which should stem pressure on domestic prices.

“The main CPI has moved widely sideways over the past four months and will likely continue this trend for the next readings, after the main CPI is expected to drop towards 5% by March 2023.

“The upward march of inflation may have been halted, but the risk of inflation now lies in the very large trade deficit which requires urgent political action. Until then we cannot rest easy on the inflation outlook.”

DIPANWITA MAZUMDAR, ECONOMIST, BANK OF BARODA, MUMBAI

“The aforementioned consensus of 7% is a warning. In sequence, more than 58% of food and beverage products showed an increase in inflation. Even within the core, components such as household goods and services and articles for personal care reflect the fact that the cost of input is increasing.

“High frequency growth indicators such as air passengers, port freight, rail freight and car sales have also shown a notable increase in momentum. Therefore, the core is likely to remain stable in the coming months. purchasing managers) are reflecting the fact that the business of services is impressive.

“However, the spillover impact of slowing global growth and tightening financial conditions around the world would eventually affect demand conditions in the economy. RBI is also expected to continue with another round of rate hikes. . Our expectation is a 50bp increase in the current cycle. “

SREEJITH BALASUBRAMANIAN, ECONOMIST, IDFC AMC, MUMBAI

“August headline CPI of 7% y / y, up from 6.7% in July, was allegedly driven by a rise in food prices. The sequential momentum in grain, vegetable, legume and milk prices it increased compared to that of July, while that of vegetables, oil, fruit, meat and fish remained negative, while the dynamics of core inflation was only slightly lower.

“The real-time prices of rice, wheat and vegetables continue to rise in September unlike those of edible oils. While food inflation could define the trajectory of short-term CPI inflation, other factors such as the price of crude oil, growth and pressure on the supply chain could be important determinants in the medium term ”.

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

“Another 7% inflation in line with our expectations confirms our belief that the pressure on prices will not go away anytime soon, even though being a year-on-year press, inflation may be off the peak.

“Predictably, food prices have also increased dramatically. Given the favorable wind generated by high food prices as production suffers from the erratic monsoon, we don’t see consumers’ troubles running out anytime soon.

“We expect a further 60bps rate hike from the RBI before it ends the rate hike cycle, shifting focus to growth given the rather grim employment situation.”

SAKSHI GUPTA, MAIN ECONOMIST, HDFC BANK, GURUGRAM

“Inflation in August returned to 7%, driven by rising food inflation, particularly in cereals affected by the irregular monsoons. Core inflation continued to remain stable near 6%. Inflation in cereals continues. to be of concern and could lead to further pressures on the press CPI also in September.

“The RBI is likely to raise rates by 50 basis points at the next policy as inflationary pressures continue to persist. Also, while domestic conditions remain the RBI’s main focus, an aggressive global tightening could push the central bank. to keep increasing prepaid rates as a defense for the currency and, in turn, imported inflation. “

GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL SHARES, ELARA CAPITAL, MUMBAI

“Consumer price index inflation in August increased due to the recovery in food prices in an inclement climate and the expected shortage of production of some commodities such as paddy rice. The rise in food prices is however, it was partially offset by falling fuel prices.

“Going forward, CPI is expected to follow a less than 6% trajectory by Q4FY23 as gains during the recent commodity price correction begin to be reflected in retail prices. We expect MPC to increase the policy repo rate of another 25-35 bps in September before pausing to assess the impact of rate hikes undertaken since May 2022. “

RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE

“The negative seasonality in selected food groups, the fallout of irregular rainfall and the consequent increase in cereals have revived the food sub-component.

“The easing of supply-side pressure (especially oil prices) was a counterweight, while core inflation (excluding food and fuel) rose to 5.8% yoy.

“The evolving trend in inflation largely follows the central bank’s forecast for 2QFY23 and is unlikely to trigger a change in policy guidance. With the base effects expected to increase the headline print in September and then subside, we expect that the central bank will moderate the quantum of the rate hikes in the future. “

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Reporting by Rama Venkat, Chris Thomas, Nallur Sethuraman in Bengaluru; Editing by Vinay Dwivedi

Our Standards: Thomson Reuters Trust Principles.

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