Indian consumer price inflation likely to have accelerated in June

Indian consumer price inflation and industrial production data are set to be released this week. According to a DBS Bank research report, inflation is expected to have accelerated to a two-year high at 5.3 percent year-on-year in June from May’s 4.9 percent.

The higher inflation is expected to have been driven by increased food prices and hike in domestic fuel prices. Equally worrisome would be hardening up of core inflation, which is expected to have accelerated to 6.5 percent year-on-year as compared with May’s result of 6.2 percent – testing the upper bound of the 2 percent to 6 percent policy target.

Given a confluence of a challenging external environment, increased oil prices and possibility of expansionary domestic policies, the Reserve Bank of India is expected to keep the August hike risks on the table, stated DBS. Meanwhile, industrial production is likely to have slowed to 3.4 percent year-on-year from April’s 4.9 percent, despite an increase in sequential terms.

“We pencil in the May trade deficit at -USD13.8bn, partly due to underperforming exports (base effects will lift YoY rise) and higher commodity imports bill”, added DBS Bank.