June CPI cools down; May IIP falls to 1.7%: Room for rate cut opens up, say experts

India's retail inflation cooled down to 1.54 percent in June from 2.18 percent in May, mainly due to goods and services tax-induced discounts. Core inflation rate was at 3.8 percent versus 4.2 percent month on month and food inflation came in at -1.17 percent versus -1.05 percent MoM.

Meanwhile, India's industrial output also fell to 1.7 percent in May from 3.1 percent in April. However, April IIP was revised to 2.8 percent from 3.1 percent.

May IIP is at the lowest level since November 2016. Factory output measured by the index of industrial production (IIP) is the closest approximation for measuring economic activity in the country’s business landscape.

Economist Indranil Pan, Chief Economist at IDFC Bank, Gaurav Kapur, Chief Economist at IndusInd Bank and Sajjid Chinoy, Asia Economics at JP Morgan discuss the outlook on inflation and industrial output going forward in an interview to CNBC-TV18

Chinoy said the CPI number is in the ballpark. The range was somewhere between 1.5 and 1.7 percent. This confirms the fact that price momentum continues to slow. This will increase the case for a cut. However, it will depend on how core inflation pans out in this particular month. According to him the March 2018 forecast for inflation could be around 4 perent or closer to that, so a bit of space for monetary easing does open up contingent on how core inflation dynamics pan out.

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According to Pan, the July inflation number is likely to be pretty close to what the June numbers are and end March number could be closer to a 4.1-4.2 percent given the fact that we would be putting in about a 50 basis point increase to the base line case for inflation because of the HRA component under the Seventh Pay Commission.

Kapur said, I was expecting the CPI number to be about 1.4 percent and in the month of July, post the HRA implementation, I am expecting the number to go up to about 1.8 percent. According to him there are yet too many moving parts and so a rate cut by monetary policy committee in August is not given but probability is more for them to move in October.

For the entire discussion, watch videos