INSUBCONTINENT EXCLUSIVE:
Surging prices of petrol, diesel led to high inflation in June.Mumbai/Bengaluru:Retail inflation rate accelerated to a five-month high of
5.0 per cent in June, government data showed on Thursday, driven by higher fuel prices and a depreciating rupee
Analysts polled by Reuters had forecast June's annual increase in the consumer price index at 5.30 per cent, compared with May's 4.87 per
June was the eighth straight month in which inflation was higher than the central bank's medium-term target of 4 per cent.Here's what
experts say:Abhishek Upadhyay, senior economist, ICICI Securities primary dealership"Inflation has surprised.
lower than our estimates, mainly led by food inflation, and within that vegetables inflation in particular
This implies that average inflation over the last quarter has trended a little below the RBI's projection of 4.9 per cent
However, the worry is that core inflation remains elevated, backed by continued strong sequential momentum
Add the fact that softness in food inflation is also mainly driven by lower perishable food inflation, which is typically volatile,
inflation internals are rather weak.""Given that the impact of higher minimum support prices is yet to flow through to food prices, we
continue to believe the case for monetary tightening remains strong
However, the timing of the hike remains a precarious call to make
We continue to have a slight preference this hike to take effect in October, relative to August
By then the monetary policy committee would have more information about inflation persistence, monsoons and crude prices."Tushar Arora,
senior economist, HDFC Bank"Headline number is better than our and street expectations in general, but it is still above the RBI's estimate
Moreover, core inflation, the one component which the central bank should be most worried about, is still high and has in fact gone up in
Therefore, in our view, August rate hike is still on the table."Aditi Nayar, principal economist, ICRA Limited"The impact of higher MSPs on
inflation and fiscal risks and a string of expenditure announcements by state governments such as the recent crop loan waiver by Karnataka,
have resulted in upside risks to the inflation trajectory for the remainder of FY2019, notwithstanding a favourable base-effect and the
recent dip in crude oil prices."Such factors, in conjunction with the rise in core inflation in June 2018, suggest a high likelihood of a
repo rate hike in August 2018
In ICRA's view, the monetary policy committee (MPC) may increase the repo rate by another 25-50 bps in FY2019, depending on the extent to
aggressively on rates on the basis of rupee's depreciation unless there are signs of incrementally firming up of core inflationary pressures
on account of the same due to the second round impact
RBI is likely to remain watchful of the momentum of core inflation.""RBI is unlikely to change its inflation forecasts in August in response
to recent increase in MSPs (Minimum Support Prices)as it is likely to wait for the government's announcement on MSP support schemes like
market assurance or deficiency price support.""Today's inflation print suggests that the seasonal risks of high food inflation have yet to
So, the data warrants that RBI wait and watch before changing its estimates.""Core inflation continues to remain elevated amid build-up in
prices of items such as educational services, household goods and services, and recreation and amusement."Indranil Pan, group economist,
IDFC Bank"The rupee's depreciation is likely to lead to some input cost pressure for manufacturers and will be felt directly in the WPI
This will obviously get passed on to the end user and should have an influence on retail prices
In the event that the pass-through is inefficient and manufacturers are able to absorb some portion of the higher input cost, the likely
implication of the rupee's depreciation on inflation will be relatively muted.""A sharp increase in the core inflation and the higher
inflation expectations should worry the RBI rather than the rupee's depreciation pressures
Anyway some adjustment in the rupee was warranted given the higher crude and EM currency depreciation
The currency depreciation has not been too jerky - further there are adequate forex resources to take care of some shocks
Hence, the rupee's weakness is unlikely to be the guiding factor for the RBI to raise rates
It would continue to be the inflation that would guide rate increases.""We are expecting RBI to raise the policy rate two more times in the
current financial year."Shubhada Rao, chief economist, Yes Bank"This is a hugely positive CPI print as it comes much lower than consensus
and our own CPI projection
A clear positive was on the food price momentum that remained muted basis seasonalities
Although core remains elevated that may keep the RBI on guard
We have not yet removed the 'risk' of one more rate hike
