Indian headline inflation accelerated further in June, led by increased food prices but roughly in line with market estimates. On a sequential basis, the consumer price inflation accelerated to 0.63 percent from May’s 0.57 percent. On a year-on-year basis, inflation accelerated for the fifth straight month. It rose to 3.18 percent from May’s 3.05 percent. The rise in today’s print was mainly driven by increased food prices, which rose 2.37 percent year-on-year, especially pulses.
Nevertheless, overall demand pressures continue to be soft. This was reflected in core CPI easing for the eighth straight month. All major categories, excluding food, saw a deceleration in annual inflation except “housing” and “tobacco”. Domestic fuel prices also eased in June.
“We continue to expect core pressures to remain on the weaker side for the rest of the year, as reflected in persistent sluggishness in high frequency economic indicators, including car/two-wheeler sales”, stated ANZ in a research report.
With this print, inflation averaged 3.07 percent in the first quarter of fiscal 2020. This is close to the RBI’s first half FY20 inflation forecast of 3 percent to 3.1 percent. Base effects will see inflation stay subdued in the second quarter of FY20 unless food inflation surprises sharply on the higher side.
Weak demand strengthens the view that inflation is likely to be lower than the RBI’s medium-term target of 4 percent for the remained of 2019, said ANZ.
“The only upside comes from higher food prices if rainfall disappoints further, and oil prices, which remain volatile. This creates room for additional monetary policy easing in our view, with an impending 25bp cut in August”, added ANZ.
