BENGALURU (Reuters) - India's retail inflation accelerated to 7% year-on-year in August, driven by a surge in food prices, adding pressure on the central bank to further hike interest rates later this month.
The monetary policy committee (MPC) of the Reserve Bank of India (RBI) has raised the benchmark repo rate by 140 basis points since May to 5.4%, including 50 basis points last month, aiming to curb consumer demand.
VIVEK RATHI, DIRECTOR-RESEARCH, KNIGHT FRANK INDIA, MUMBAI
"Inflation levels in the economy remain elevated despite a considerable reduction in crude oil price from its recent highs. Rise in food prices, domestic fuel price level and pressure on the Indian currency continue to pose near-term threat to the inflation trajectory.
"These will also guide the upcoming monetary policy action, which has so far already witnessed three policy rate hikes and liquidity tightening measures over the last five months.
"However, the strong sentiment on both the business and consumer fronts highlights the economic resilience, which domestic and global business participants are expected to take note of for their India plans."
UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
"The CPI inflation came in slightly softer than expectations. The 2QFY23 average continues to be elevated but maybe marginally lower than RBI's estimates of 7.1%. We expect 35 bps of rate hike by the MPC in the upcoming policy."
PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI
"August CPI came in higher than our (6.7%) expectations, largely driven by food such as pulses and wheat. We've already seen the government announced restrictions on export of wheat flour and more recently for rice which should stem domestic price pressures.
"Headline CPI has been moving broadly sideways for the last four months and will likely continue this trend for the next few readings, post which headline CPI should to descend towards 5% mark by March 2023.
"The upward march of inflation may have been arrested but the inflation risk now resides in the very wide trade deficit that needs urgent policy action. Until then we cannot rest easy on inflation outlook."
DIPANWITA MAZUMDAR, ECONOMIST, BANK OF BARODA, MUMBAI
"The above consensus print of 7% is a cautionary call. Sequentially, more than 58% of food and beverage items have shown an uptick in inflation. Within core as well, components such as household goods and services and personal care items also reflect the fact that input cost is going up.
"Even the high frequency growth indicators such as air passenger, port cargo, rail freight and auto sales have shown considerable pickup in momentum. Thus, core is likely to remain sticky in the coming months. PMI (purchasing managers' index) data is also reflective of the fact that services activity is impressive.
"However, the spillover impact of global growth slowdown and tightening financial conditions worldwide would impinge on the demand conditions of the economy sooner or later. RBI is also expected to continue with another round of rate hike. Our expectation is an addition of 50bps hike in the current cycle."
SREEJITH BALASUBRAMANIAN, ECONOMIST, IDFC AMC, MUMBAI
"August headline CPI of 7% y/y, up from 6.7% in July, was expectedly driven by a turn up in food prices. Sequential price momentum in cereals, vegetables, pulses and milk picked up from that in July while that in vegetable oils, fruits, meat and fish stayed negative. Core inflation momentum was only mildly lower.
"Real time prices of rice, wheat and vegetables continue to move up in September unlike that of edible oils. While food inflation could define the trajectory of CPI inflation in the short term, other factors like crude oil price, growth and supply chain pressures could be important determinants in the medium term."
KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU
"Another inflation print of 7% bang in line with our expectation confirms our belief that price pressure is not going to go away anytime soon, although being a year-on-year print, inflation may be off the peak.
"Expectedly food prices moved up sharply as well. Given the tailwind generated by high food prices as production suffers due to erratic monsoon, we do not see consumers' cup of woes emptying out soon.
"We expect an additional 60 bps rate hike by the RBI before they bring the rate hike cycle to an end as they shift the focus back to growth given the rather dismal employment situation."
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
"Inflation for August is back up to 7% led by higher food inflation — particularly in cereals impacted by uneven monsoons. Core inflation continued to remain sticky close to 6%. Cereal inflation continues to be a concern and could lead to further pressure on the CPI print in September as well.
"The RBI is likely to raise rates by 50 basis points at the upcoming policy as inflationary pressures continue to linger. Moreover, while domestic conditions remain the primary focus for the RBI, aggressive tightening globally could nudge the central bank to continue front loading rate hikes as a defence for the currency and in turn imported inflation."
GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI
"August CPI inflation edged higher amid resurgence in food prices amid inclement weather and expected shortage of output of certain commodities like paddy. The uptick in food prices was however partly compensated by lower fuel prices.
"Going forward, CPI should track sub-6% trajectory by Q4FY23 as gains during recent commodity price correction begin to reflect in retail prices. We expect the MPC to hike policy repo rate by another 25-35 bps in September policy before it pauses to assess the impact of rate hikes undertaken since May 2022."
RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE
"Negative seasonality in select food groups, fallout of uneven rainfall and resultant uptick in cereals perked the food sub-component.
"Easing supply-side pressure (oil prices in particular) was a counterweight, while core inflation (ex food and fuel) ticked up to 5.8% y/y.
"The evolving inflation trend largely tracks the central bank's forecast for 2QFY23 and is unlikely to trigger a change in policy guidance. With base effects expected to perk the headline print in September and ease thereafter, we expect the central bank to moderate the quantum of rate hikes going forward."
(Reporting by Rama Venkat, Chris Thomas, Nallur Sethuraman in Bengaluru; Editing by Vinay Dwivedi)