July WPI inflation eases to 6.87% (YoY)

A CNBC-TV18 poll had an annual rise of 7.25%. The annual reading for May remained unchanged at 7.55%. June's inflation was provisionally put at 7.25%.

"This data cannot be taken as evidence that inflation is coming down. There are underlying risks. Crude prices have gone up, core inflation is higher, so this fall in inflation may be temporary. We still think it will be premature for the Reserve Bank of India to cut rates," said A Prasanna, economist, ICICI Primary Dealership.

July WPI Inflation Highlights

• Manufactured Products Inflation At 5.58% Vs 5% (MoM)
• Manufactured Products Index (RU)0.6% (MoM)
• Primary Articles Inflation At 10.39% Vs 10.46% (MoM)
• Primary Articles Index (RU)1.1% (MoM)
• Fuel Group Inflation At 5.98% Vs 10.27% (MoM)
• Fuel Group Index (GD)1.5% (MoM)
• Food Articles Inflation At 10.06% Vs 10.81% (MoM))
• Food Articles Index (RU)1.4% (MoM)
• Non-food Articles Index (RU)2.9% (MoM)
• May WPI Inflation Unchanged At 7.55% (Prov)

* The benchmark 10-year bond yield dropped around 8 basis points to 8.15 percent from before the data, and compared with 8.20 percent at close on Monday.

* The 1-year OIS rate fell 4 bps to 7.73 percent from beforehand, while the 5-year OIS rate fell 3 bps to 7.03 percent.

* The rupee pared losses, trading at 55.64/65 against the dollar from about 55.72/73 before the data, while the Sensex swung to a gain of 0.4 percent, led by a rise in banks from mild losses earlier.

BACKGROUND

- RBI Governor Duvvuri Subbarao stuck to a hawkish tone on Monday, emphasising his concern that inflation remains too high and again prodding the government to restrain its own borrowing.

- Drought in some regions of the country have hit many crops and could pile pressure on food inflation in the coming months.

- Many economists have slashed their forecasts for India's growth in the current fiscal year to March to around 5.5 percent, saying weak summer monsoon rains have added to the economic headwinds.

- Industrial output fell for the third time in four months in June, adding to pressure on new Finance Minister Palaniappan Chidambaram to move quickly and pull Asia's third-largest economy from its worst slowdown in almost a decade.

- The Reserve Bank of India left interest rates unchanged in July for the second straight review, showing that bringing down stubbornly high inflation is its top priority even as economic conditions deteriorate.

With inputs from Reuters.