India's headline retail inflation rate likely rose for the first time in four months to 6.9 percent in August, according to a Moneycontrol poll of 18 economists.
According to economists, inflation likely rose in August as an increase in food prices was partially cancelled out by lower prices of other items in the CPI basket.
"Prices of cereals and pulses are beginning to rise as fears of a smaller sown crop area this year, combined with moderating buffer stocks, are creating expectations of higher prices," said Rahul Bajoria, chief India economist at Barclays. "While a few food export restrictions have been imposed by the government, some passthrough from international prices into domestic prices remains inevitable."
Bajoria expects food and beverage inflation of the CPI to have risen to 7.2 percent in August from 6.7 percent in July.
According to data from the Department of Consumer Affairs, retail prices of rice rose by 2.3 percent month-on-month in August, while that of 'atta' (wheat flour) increased by 3.5 percent over the same period.
The price of pulses also broadly rose sequentially in August. While the price of gram dal was unchanged, that of moong and masoor dal was up 0.2 percent and 0.7 percent month-on-month. The biggest price rise was for tur, which increased by 4.8 percent, and urad dal, which climbed 2.6 percent month-on-month.
On the plus side, prices of all six edible oils for which data was available fell in August from July, with the drop ranging from 0.4 percent to 3.7 percent.
The movement of vegetable prices was mixed. While onion and potato prices increased 0.7 percent and 3.5 percent, respectively, tomato prices slumped 13.6 percent, data from the consumer affairs department showed.
| ORGANISATION | ESTIMATE FOR AUG CPI INFLATION |
| Bank of Baroda | 6.7% |
| Barclays | 6.7% |
| IndusInd Bank | 6.75% |
| Elara Capital | 6.8% |
| Deutsche Bank | 6.88% |
| State Bank of India | 6.88% |
| CareEdge | 6.9% |
| DBS Bank | 6.9% |
| ICRA | 6.9% |
| IDFC First Bank | 6.9% |
| HDFC Bank | 6.96% |
| Motilal Oswal Financial Services | 7% |
| QuantEco Research | 7% |
| Societe Generale | 7% |
| Standard Chartered Bank | 7% |
| L&T Financial Services | 7.1% |
| Sunidhi Securities | 7.18% |
| YES Bank | 7.37% |
Policy impact
At 6.9 percent, the August CPI inflation print would be above the Reserve Bank of India's medium-term target of 4 percent for the 35th straight month. More importantly, it would be outside the central bank's 2-6 percent tolerance range for the eighth consecutive month. This would leave the RBI just one month away from failing to meet its inflation mandate.
The RBI is deemed to have failed its mandate when average CPI inflation is outside the 2-6 percent tolerance band for three consecutive quarters. CPI inflation averaged 6.3 percent in January-March and 7.3 percent in April-June. The RBI has forecast it will average 7.1 percent in July-September.
Should the RBI fail, it must submit a report to the central government, spelling out the reasons for the failure, the remedial actions it proposes to take, and an estimate of the time within which inflation will return to target.
However, economists don't see failure to meet the inflation mandate resulting in a dramatic change in monetary policy. The Indian central bank has already increased the policy repo rate by 140 basis points to 5.4 percent in the past four months.
The Monetary Policy Committee is scheduled to next meet on September 28-30, with economists predicting another interest rate hike.
IIP growth
Separately, the statistics ministry will release industrial production data for July, also at 5.30 pm on September 12.
Industrial growth, as measured by the Index of Industrial Production (IIP), is seen tumbling to 4.1 percent in July from 12.3 percent in June, according to the median of estimates by 16 economists polled by Moneycontrol.
| ORGANISATION | ESTIMATE FOR JUL IIP GROWTH |
| HDFC Bank | 2.5% |
| Standard Chartered Bank | 2.5% |
| IDFC First Bank | 2.9% |
| DBS Bank | 3% |
| Sunidhi Securities | 3.3% |
| YES Bank | 3.7% |
| Motilal Oswal Financial Services | 3.8% |
| ICRA | 4% |
| CareEdge | 4.1% |
| IndusInd Bank | 4.1% |
| Elara Capital | 4.15% |
| Deutsche Bank | 4.4% |
| State Bank of India | 4.4% |
| QuantEco Research | 4.9% |
| L&T Financial Services | 5.2% |
| Bank of Baroda | 5.4% |
In June, IIP growth had tumbled to 12.3 percent from 19.6 percent in May as a favourable base effect waned. The normalisation of the base is expected to continue in July as well.
Further, according to Rupa Rege Nitsure, group chief economist at L&T Financial Services, mining activity is likely to have been lower in July compared to June due to the monsoon.
"While domestic manufacturing activity showed good traction in July, there was a slowdown in exports growth, in line with the slowdown in external demand," Nitsure added.
Industrial growth jumped three-fold in May to 19.6 percent on the back of the second wave of the coronavirus pandemic engulfing the country in the year-ago period. The second wave led to the reimposition of restrictions on movement and activity in several parts of the country, adversely impacting industrial activity, thus creating a low base for this year's IIP growth figures.
However, activity levels improved in a couple of months, with the general index of the IIP rising 6.7 percent and 7.1 percent on a month-on-month basis in June 2021 and July 2021, respectively.