India inflation likely cooled in August, but still above RBI target range

BENGALURU (Reuters) - Inflation in India was likely to have eased in August from a 15-month high in July, led by cooling vegetable prices, but held above the upper end of the Reserve Bank of India's 2%-6% target for a second month, a Reuters poll found.

Erratic monsoon rains have ruined some crops of staple food items, prompting the government to subsidise vegetable prices and ban exports of some cereals, providing temporary relief to households.

That was sufficient to bring down headline inflation as food prices account for nearly half of the overall inflation basket. However, rising energy prices are likely to limit the decline.

The Sept. 4-7 Reuters poll of 45 economists predicted the consumer price index rose 7.00% in August compared to a year ago, a dip from 7.44% in July. The data will be released on Tuesday.

Forecasts ranged between 6.50% and 7.65%, with almost two-thirds of respondents expecting inflation to be 7.00% or higher.

"The worst is over in terms of the recent spike in vegetables, mainly tomato prices, and much of the headline deceleration we expect to see in the upcoming CPI report should stem from a sharp turnaround in food inflation back down to the single-digit territory," said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.

Chanco added the erratic monsoon season "means the risks to inflation will remain skewed to the upside over the next few months."

While inflation in Asia's third-largest economy was expected to remain above the RBI's upper limit of the target range at least until October, it was forecast to remain higher than the central bank's 4% medium term target well into 2025.

However, the RBI was not expected to hike its key policy rate anytime soon and instead start cutting in Q2 2024.

"The systemic decline in food inflation, which will be visible in the October data, should give them some amount of comfort to not (make) any repo hikes. In my expectation, they will continue with the pause during the October meeting," said Debopam Chaudhuri, chief economist at Piramal Enterprises.

The survey also showed wholesale price inflation, the change in producer prices, was likely -0.60% year-on-year in August after a 1.36% decline in the previous month.

(Reporting by Anant Chandak; Polling by Veronica Khongwir and Milounee Purohit; Editing by Hari Kishan and Jonathan Cable)

By Anant Chandak