June 13, 2024


Delighting finance buffs

Inflation likely to have hit six-month low in May

India consumer price inflation is likely to have moderated to a six-month low in May on a softer rise in food prices as supply disruptions eased after businesses reopened from the coronavirus lockdown in many parts of the country, a Reuters poll found.

The June 4-9 poll of 35 economists showed that the consumer price index (CPI) was forecast to rise to 5.50 per cent in May compared with a year ago.

Government statistics for April headline data were not published because of the lockdown, so the latest comparable figure is for March, which was revised down to 5.84 per cent from 5.91 per cent initially.

But some economists believe the May inflation data, scheduled for release on June 12 at 1200 GMT, will also be cancelled.

If publication goes ahead and the Reuters consensus forecast is realised, it would be the lowest inflation rate since November. But it would also mark the eighth consecutive month that inflation is above the Reserve Bank of India’s medium-term target of 4.00 per cent.

“Food prices will be the biggest risk, but we do not see a material jump in inflation owing to lifting of the lockdown … and rising unemployment numbers suggest demand-pull inflation will continue to be low,” said Rini Sen, India economist at ANZ.

Some economists also expected price pressures for food to be moderate over the coming months based on expectations for the monsoon to be timely and normal.

Also, minutes of the latest unscheduled Reserve Bank of India meeting in late May, where it again cut the repo rate by 40 basis points to 4.00 per cent, showed the central bank’s policy focus is aimed at reviving the economy first before worrying about the inflation outlook.

“The upshot is that inflation should not be a barrier to further policy loosening. The RBI is likely to further ramp up policy support in its next meeting, or sooner in an unscheduled meeting,” said Darren Aw, Asia economist at Capital Economics.

The poll forecast that India’s industrial output as measured by the Index of Industrial Production, or IIP, also scheduled for release on June 12, was likely to have contracted by an annual 44.9 per cent in April after shrinking 16.7 per cent in March.

That was mainly due to a contraction of 38.1 per cent in infrastructure output – made up of eight main industries – including coal, crude oil and electricity – and accounts for nearly 40 per cent of the country’s overall industrial production.

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