Indian consumer price inflation likely to have decelerated below target rate in August

The Indian consumer price inflation data for August is set to be released tomorrow. According to a DBS Bank research report, the headline inflation is likely to have decelerated below the 4 percent target to 3.7 percent year-on-year from July’s 4.2 percent. A seasonally soft period for food inflation might aid in countering the effect of rising fuel/transport costs. High global oil prices, along with a subdued rupee have led to a record high rises in domestic fuel prices.

Yet far, the government has been unwavering in its attempts to protect fiscal revenues by not lowering fuel excise duties, but possibly to impinge on consumers’ purchasing power. For the RBI, the policy path is expected to get challenging in the run-up to the October policy review as inflation is decelerating at a time when market volatility is high, and the rupee is at a record low against the US dollar, stated DBS Bank.

“If the rupee remains under pressure, the RBI might be forced to hike rates citing risks to inflationary expectations and second order impact of a weak currency. August WPI inflation, due on Friday, is seen at 4.5 percent YoY from July’s 5.1 percent”, added DBS Bank.

Meanwhile, industrial production is expected to have grown 6.3 percent year-on-year, slightly slowdown from June’s 7 percent. However, the sequential rate is expected to have moderated. Jittery sentiments and increasing inputs costs have weakened manufacturing PMIs in the past two months, with lower cement, oil, and coal output also slowing infra output modestly.

“August trade deficit, due around mid-Sep, is likely to only correct slightly to USD 16.5bn from July’s USD18bn”, said DBS Bank.