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India's August retail inflation eases to 5.30% y/y

09/13/2021 | 08:56am EDT
A vendor waits for customers at his shop inside a vegetable market in Kolkata

BENGALURU (Reuters) - India's annual retail inflation eased to 5.30% in August from 5.59% the previous month, government data released on Monday showed.

Analysts in a Reuters poll had predicted annual inflation at 5.60%.

COMMENTARY

MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL FINANCIAL SERVICES, MUMBAI

"Today's CPI (consumer price index) surprise is lower by our estimates by 30 bps, led by sequentially lower-than-expected food inflation. However, core remains high and sticky and may remain under pressure amid lagging impact of passing on of high global commodities and margin pressures.

"Meanwhile, the ensuing demand revival in contact-sensitive household services amid reopening could pressure core services inflation ahead. Overall, core inflation will likely remain sticky and will likely outdo headline inflation through the year.

"The headline CPI may average almost 60 bps lower than the RBI's forecast of 5.7%. With the monetary reaction function currently hinging more on growth revival becoming sustainable, the RBI (Reserve Bank of India) is unlikely to change key policy rates this year and the focus will be more on surplus liquidity management."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"August CPI inflation surprised positively with inflation easing notably due to food and gold (-10% YoY). Improved food supply and easing of safe haven tendencies this year has contributed to the softening in headline inflation.

"However, core CPI remains steady and elevated due to input price inflation pass-through in most broad core CPI segments. Having said that, headline inflation in the first two months of September quarter has averaged 5.5% vs the recent RBI estimate of 5.9%.

"This inflation undershoot should give the MPC (Monetary Policy Committee) more wiggle room while charting exit from crisis-level monetary policy this year."

VIVEK KUMAR, ECONOMIST, QUANTECO RESEARCH, MUMBAI

"Despite inflation accelerating in most of the countries, it's a relief to see India's CPI inflation moderating for two months in a row. Overall, the Aug. 21 headline inflation print of 5.30% is moderately lower than our expectation and confirms our belief that subdued food price pressures will play a crucial role in lowering FY22 CPI inflation to 5.6% from 6.2% in FY21.

"The combination of recent advancement in kharif sowing acreage along with government's administrative steps to curb excessive increase in price of select food items bodes well for near-term trajectory on overall food inflation.

"In addition, signs of plateauing of key global commodity prices provides relief. On the other hand, we need to keep a close eye on core inflation, which despite recent moderation, continues to remain elevated, while showing signs of downward rigidity."

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

"The number has come lower than expected, which is a good sign and augurs well for the economy. At least for the next two quarters, the inflation number will be lower than what has been guided by the RBI. This reduces the pressure on the RBI to start normalizing rates soon.

"During this calendar year, we expect the RBI to hold rates and maybe early next year we will be starting to see some level of normalization in the interest rates.

"While the policy interest rate may start moving from early 2022, we don't see much change in the liquidity situation. Overall, we think the downward bias for the market interest rates will continue."

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE

"Inflation trended lower in August on the back of favourable base effects and moderating sequential food prices in most segments barring oil and fats. Core inflation also rose by a slower 5.8% y/y in August vs average 6.1% in the prior three months.

"Favourable base effects are expected to soften inflation readings to sub-5% in 4Q21, lending downside risks to the RBI's projection for this quarter and the next. These inflation tailwinds will allow the central bank to remain accommodative at the October policy review, with a bigger focus on liquidity management via absorption measures.

"On a sequential basis, pipeline forces remain under watch, particularly due to the domestic fuel tax rigidity, service reopening gains and pass-through of supply bottlenecks (chip shortage, high logistics costs etc.)."

SAKSHI GUPTA, SENIOR ECONOMIST, HDFC BANK, GURUGRAM

"Inflation surprised on the downside in August compared to consensus expectations. The softness was led by lower food inflation, especially in cereals, sugar and vegetable categories. Core inflation also dropped below 6% after remaining elevated for the last few months. Fuel inflation continued to play spoilsport at almost 13% in the month.

"Inflation readings could remain contained for the next 2-3 months, in part supported by a high base, before inching up to 6% from December onwards. For now, the sub-6% print for a second consecutive month is likely to take the pressure off the RBI to normalise liquidity just yet.

"We expect the central bank to start discussing any liquidity rollback only by the beginning of 2022."

SREEJITH BALASUBRAMANIAN, ECONOMIST - FUND MANAGEMENT, IDFC AMC, MUMBAI

"With the August print of 5.3%, CPI inflation has moved further down from its peak of 6.3% in May and June, aided by softer prices of food and beverages and base effects. Core inflation remains elevated at 5.8% y/y in August and an average of 5.9% FYTD (financial year to date), but signs of a sustainable demand recovery apart from supply-side factors continue to remain important.

"The extent of manifestation of sequentially softer cereal and vegetable prices (based on available real-time data so far in September) in official CPI, sectoral supply adjustments, commodity prices, services inflation, etc. will be crucial ahead."

SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI

"CPI inflation at 5.3% in August is in line with expectations and should be seen positively by the RBI (Reserve Bank of India). Core inflation has also softened from last month.

"We expect the RBI MPC to remain focused on growth as inflationary concerns remain under check."

UPASNA BHARDWAJ, SENIOR ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

"The headline inflation came in softer than our expectations largely led by downward surprise of food prices. We expect the subsequent readings to remain fairly benign and much lower than RBI's estimates.

"The softer inflation would provide relief to the policy makers and more room to move much slowly in terms of policy normalisation. We continue to expect only tweaks to liquidity tools to manage temporary liquidity surplus in the near term."

(Reporting by Rama Venkat, Chandini, Monnappa, Chris Thomas, Nallur Sethuraman and Soumyajit Saha in Bengaluru; Editing by Vinay Dwivedi)


ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
AXIS CAPITAL HOLDINGS LIMITED 1.60% 51.95 Delayed Quote.1.47%
BANK OF INDIA LIMITED 1.10% 59.9 End-of-day quote.23.12%
CORN FUTURES (C) - CBR (FLOOR)/C1 1.74% 525.75 End-of-day quote.6.77%
HDFC BANK LIMITED 2.93% 1687.4 Delayed Quote.17.48%
IDFC LIMITED 1.31% 54.1 End-of-day quote.46.22%
KOTAK MAHINDRA BANK LIMITED 0.50% 2016.1 End-of-day quote.1.04%
LONDON BRENT OIL 0.72% 84.89 Delayed Quote.62.65%
MSCI SINGAPORE (GDTR) 0.04% 6764.805 Real-time Quote.15.62%
WHEAT FUTURES (W) - CBR (FLOOR)/C1 1.28% 734 End-of-day quote.14.60%
WTI 1.09% 82.468 Delayed Quote.69.35%
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