Indian consumer price inflation likely accelerated in August, says DBS Bank

Indian consumer price inflation is likely to have accelerated in August. According to a DBS Bank research report, the August inflation is expected to have quickened to 2.8 percent to 3 percent year-on-year, from previous month’s 2.4 percent. The acceleration is expected to be due to higher food pressures along with a mechanical pick-up in the housing component due to allowance rises.

Daily price trends in food prices indicate towards a further pick-up, because of seasonal effects and supply shortages, particularly in vegetables. Beyond this short-term move, such vegetables-driven uptrend usually dissipates towards October-November and this is likely to pan out this year as well, stated DBS Bank.

Meanwhile, sustained deflationary trend in pulses inflation continued into August, with another 36 percent year-on-year fall. However, this weakening trend is expected to be close to bottom as the government to reign in imports keep excess supplies in check.

Also, a modest rise in global oil prices along with the factors mentioned, is expected to result in a firmer August consumer price inflation. In spite of this uptick, the headline in still lower than the mid-point target of 4 percent along with weakened demand-side pressures.

“While this should comfort the central bank, we reckon that the policy committee will retain its cautious outlook as CPI inflation is likely to continue inching up until 4Q on base effects and seasonal effects. Modest recovery in this week’s 2Q17 GDP growth numbers (though backward looking), is also likely to put any lingering expectations of an October rate cut, to rest”, added DBS Bank.

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