BENGALURU - India's retail inflation rate increased to 3.21% in August, as food prices across the country rose, the government said on Thursday, remaining below the central bank's 4% medium-term target for a thirteenth consecutive month.
Annual retail inflation in August was slightly higher compared with 3.15% in the previous month, and in line with analysts' forecasts.
Meanwhile, India's industrial output rose 4.3% in July from a year earlier, government data showed.
DEVENDRA PANT, CHIEF ECONOMIST, INDIA RATINGS, NEW DELHI
"Consumer food price inflation is gradually inching up from December 2018 (August 2019: 2.99%).
Core inflation (excluding food, energy, transport and communications), a proxy for demand conditions in the economy, has remained less than 5% since April 2019.
Inflation for household goods and services is on a declining trend from January 2019, and for transport and communications, it has declined in August 2019 to 1.2% from 1.6% in June 2019. This suggests weak demand conditions in the economy.
With Q1FY20 GDP growth falling to 5% and particularly private final consumption expenditure growth declining to 3.1%, pressure will be on the RBI to take monetary measures to support growth.
We expect the central bank to cut policy repo rate in its Oct. 2019 monetary policy review. However, its impact on growth is contingent on faster transmission and consumer response to rate cut."
SAKSHI GUPTA, ASSISTANT VICE-PRESIDENT, HDFC BANK, GURUGRAM
"No surprises on the inflation numbers for August (HDFC Bank forecast of 3.25%). Inflation readings continue to remain comfortably positioned.
For the year, we expect inflation readings to inch up, but remain below 4%. Consequently, we expect the RBI to cut (rate) by another 40 bps this year.
The strong increase in the Index of Industrial Production (IIP) data was a bit surprising. But the increase has not been broad-based with the consumer durables and capital goods segment seeing a decline.
Overall, on growth, we expect that activity will start to turn around in the second half of this year. We expect 6.5% GDP growth for FY20."
ANAGHA DEODHAR, ECONOMIST, ICICI SECURITIES, MUMBAI
"The CPI number is slightly lower than our estimates. Although inflation has hit a 10-month high, it continues to remain comfortably within MPC's target range.
Almost the entire increase in inflation is driven by higher food prices. This was expected as high frequency indicators showed rising food prices during the month.
We expect inflation to touch 4% by Nov. and average 3.7% during FY20. Although inflation is rising consistently, the MPC is likely to cut rates in Oct. review as growth concerns have become pressing now."
RAHUL GUPTA, CURRENCY RESEARCH HEAD, EMKAY GLOBAL FINANCIAL SERVICES, MUMBAI
"The marginal increase in CPI is mainly due to an increase in food inflation. However, for the thirteenth consecutive month, the CPI has come below RBI's medium-term target of 4%. This is mainly due to subdued crude prices.
"Also, India's growth has slumped significantly, the recent GDP figure of 5% was so alarming that along with muted inflation, it has kept the door open for at least one more rate cut by the RBI."
MADHAVI ARORA, LEAD ECONOMIST, EDELWEISS SECURITIES, FX AND RATES, MUMBAI
"CPI inflation rose less-than-expected in August, with lower sequential uptick in food components. The core inflation got back to the easing momentum and printed 4.11%. This largely affirms our view that the increase in core prices in July were more of an aberration than a trend as demand fragilities continue to weigh in.
We are in consonance with the RBI on near-term inflation dynamics and see headline inflation averaging 3.6% for FY20 (3.4% in FY19), with core moderating sharply to 4.2% (5.8% in FY19).
The current growth-inflation mix has been favourable for counter-cyclical monetary stance and with inflation likely to remain sub-4% in the foreseeable future, the MPC will likely focus on tackling weaker growth dynamics as wide output gap continues to persist.
We see scope for more easing, with terminal repo rate at least towards 5% in this easing cycle, admittedly contingent on data outcomes."
SIDDHARTHA SANYAL, CHIEF ECONOMIST AND HEAD OF RESEARCH, BANDHAN BANK, KOLKATA
"There were significant weather-related disruptions in large parts of the country during the month, contributing to pressure on prices of perishable food such as vegetables. Despite those factors, the CPI remained low, which further reinforced our confidence that the broader momentum of inflation is staying anchored.
The RBI's stance of turning more supportive of economic growth and worrying less about inflation now gets further support. We think there is a strong case for more easing by the RBI, and very clearly, today's data supports that."
RUPA REGE-NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCE HOLDINGS, MUMBAI
"Both industrial production growth and headline CPI are consistent with their ongoing trends. While the capital goods and consumer durables sectors continue to contract, a definite uptick is seen in consumer non-durables. This shows some revival in rural demand, perhaps on the back of improving monsoon penetration.
While food prices have contributed to an uptick in CPI inflation, falling fuel prices and weak core inflation have capped the increase. On the balance, growth-inflation dynamics continue to show weakness in aggregate demand."
(Reporting by Sachin Ravikumar and Chandini Monnappa in Bengaluru; editing by Uttaresh.V)