India’s inflation likely remained steady at 5.60% in August

The Sept. 6-8 poll of 41 economists put consumer price inflation at 5.60% in August from a year earlier, little changed from a three-month low of 5.59% in July.

If confirmed, inflation would be within the Reserve Bank of India’s (RBI) 2-6% comfort range for a second month. But it has been above the medium-term target of 4% for nearly two years.

“August inflation is expected to stabilise around July numbers and drift lower over the remaining months of 2021 on base effects and ebbing food prices,” said Radhika Rao, economist at DBS Bank.

Forecasts in the poll ranged from 5.10% to 5.90% – underscoring uncertainty that high inflation is only transitory.

“The central bank’s revised forecasts already accommodate upside risks to inflation, with the outcome unlikely to influence policy in either direction,” added DBS Bank’s Rao.

Last month, the central bank held its monetary policy loose, but cited concerns about inflationary pressures on the economy.

In a separate Reuters poll, the RBI – which slashed its key interest rate by a cumulative 115 basis points last year – was expected to keep its policy unchanged until at least April as it prioritises growth over inflation.

Despite the devastation of the second wave of the coronavirus, India’s economy grew at its fastest ever rate in the June quarter, supported by a low base of a record contraction a year earlier and a strong rebound in manufacturing.

The RBI also kept its growth forecast at 9.5% for this fiscal year.

“With growth on the path of recovery and a moderation in headline inflation, the stickiness of core inflation will become a source of discomfort for MPC members in the coming months despite the demonstrable dovish bias,” said Kaushik Das, chief India economist at Deutsche Bank, referring to the RBI’s monetary policy committee (MPC).

The latest poll also showed industrial output expanded 10.7% in July from a year ago, compared with 13.6% in June.

India’s infrastructure output – which comprises of eight main industries and accounts for about 40% of total factory production – rose 9.4% in July.