10 July, 2020

India June inflation likely reached highest level in nearly eighteen months: Reuters poll

BENGALURU (Reuters) – Indian inflation likely rose to the near two-year rich in June, driven by surging oil and food prices, a Reuters poll showed, an improvement that might strengthen necessitates more monetary policy tightening by the Reserve Bank of India.

According to a July 4-9 Reuters poll of 37 economists, retail prices rose with an annual 5.30 % recently. That might be the fastest since July 2019, well above May's 4.87 percent and inflation above the central bank's 4 % target to have an eighth straight month.

Forecasts for that data, scheduled to be released on July 12 at 1200 GMT, ranged from 4.60 % to 6.00 percent.

A high reading for June should cement expectations to the central bank to raise rates around August after its 25 basis points hike a few weeks ago as a measure to control potential risks the result of higher inflation.

"Weekly data suggest that both food and fuel inflation acquired further in June," Shilan Shah, senior India economist at Capital Economics, said inside of a note to clients. "We have been penciling in a further slight surge in headline CPI inflation a few weeks ago."

Further ahead, Shah said he expects core inflation to "stay elevated".

Global oil prices (CLc1), which may have risen more than 20 percent this holiday season and nearly 13 percent in June, had been a major factor behind higher inflation in recent few days as things are India's costliest import.

A recent boost in government-mandated prices is presently predicted to increase 150 billion rupees ($2.18 billion) for the government's costs, raising concerns over inflation remaining elevated within the coming months.

Ahead of the 2019 general election, "there will probably be a rise in populist investing in schemes which might support farmers' incomes, albeit only temporarily," Tanvee Gupta Jain, an economist at UBS AG, said within a note.

Adding to worries, the wholesale price index was forecast to strike a 15-month high of 4.93 percent in June, from 4.43 percent in May.

That supports predictions for even more policy tightening from the central bank around next month.

Jain predicts that this monetary policy committee (MPC) will hike policy rates by another 25 basis points in August "before heading to get a prolonged pause".

"However, the chance of a one hundred basis points tightening cycle (such as 25 basis points hike already announced) currently is quite definitely alive to be certain financial stability," she said.

The Reuters poll forecast that industrial output increased in May in a three-month most of 5.2 percent from a year earlier, up from April's 4.9 %, helped by the 3.6 percent rise in annual infrastructure output.

(Polling by Khushboo Mittal and Anisha Sheth; Editing by Richard Borsuk)