MC Poll | Inflation likely at 60-month low in Aug, industrial production grows in July

Food inflation to decline further in August

India’s inflation seems to have softened to a 60-month low of 3.50 percent in August from 3.54 percent a month back, according to a Moneycontrol (MC) poll of 10 economists.

The forecasts in the poll ranged from a low of 3.2 to a high of 4 percent. The economists think that a favourable base and cheaper perishables have kept the consumer prices in check.

Inflation had zoomed to 6.8 percent in August 2023.

“High frequency data for perishables point to a moderation in momentum in August, which together with remnant base effects are likely to keep headline inflation in the lower half of the target band,” said Radhika Rao, senior economist at DBS Bank.

Vegetable prices to remain high

The economists Moneycontrol had reached out to, however, apprehend a spike in vegetable inflation to double digits. “Vegetable inflation is projected to remain high, bouncing back to double digits, and the deflation in edible oil is expected to reduce further,” said Rajani Sinha, chief economist at CareEdge.

Sinha also noted a marginal rise in core inflation and the projected inflation figure to be higher at 3.7 percent in August.

Purchasing Managers' Index (PMI) data, which was released earlier this week, pointed to easing price pressures for services, but higher output prices for manufacturing.

Cost pressures in manufacturing output led to one of the strongest rises in close to 11 years, as per the PMI release on September 2.

Positive news on industrial output
On the industrial front, there was positive news as the MC Poll expects industrial production to inch up to 4.8 percent in July, as compared to 4.2 percent in the previous month.

Manufacturing indicated a strong growth in the first quarter of the fiscal, with the gross domestic product (GDP) data indicating a 7 percent rise. The corresponding figure during a similar period in the previous year was at 5 percent.

Core sector, which has a 40 percent weight in the index of industrial production, rebounded to 6.1 percent in July, as compared to 5.1 percent growth in June. “Ind-Ra (India Ratings and Research) believes moderate growth in the core sector may keep growth in IIP (index of industrial production) around 5 percent in July,” said Paras Jasrai, senior analyst at Ind-Ra.

The Reserve Bank of India (RBI) is likely to be on a wait-and-watch mode.  The central bank has estimated inflation to hover around 4.4 percent for the second quarter amid a healthy trend for industrial production.

The RBI’s monetary policy committee’s (MPC) bi-monthly meeting will be held in October. Experts believe that the MPC is likely to go for an interest rate cut of 25 basis points (bps) in its next meeting in December.

In its last monetary policy review meeting in August, the RBI kept the policy rate at 6.5 per cent for the ninth consecutive time.