India inflation to move up

The new series of India CPI data indicates that inflation has bottomed. While the RBI's target of 6% yoy by January 2016 is not yet expected to be breached, there is potential for abuild-up of inflationary pressure. While copious rainfall until early in the fourth week of June erased fears of insufficient rainfall, its performance since 25 June suggests that monsoonworries are not going to be washed away. 

"India's headline CPI for June 2015 will likely print at around 5.3% yoy, higher than the May 2015 CPI print of 5.0% yoy", says Societe Generale.

The fact is, July is a very crucial month as it generally accounts for around 30% of total rainfall during the season as compared to approximately 15% in June. And, the data so far is not very good. Based on IMD (Indian Meteorological Division) data, overall rainfall between 25 June and 1 July was 14% below normal, bringing down the average for the entire period (1June to 1 July) to 2% below normal.

Even as the impact of unseasonal rainfall (and hailstorms) in certain parts of the country and drought in others are still affecting prices, Potentially weaker rainfall in July could keep the government is now better prepared to manage such contingencies.