Indian headline inflation eases year-on-year in July, RBI unlikely to hike rates further in 2018

India’s headline inflation came in below expectations in July. On a year-on-year basis, the headline print eased to 4.17 percent from June’s 4.29 percent. On a sequential basis, the consumer price index rose 0.94 percent from June’s 0.51 percent. Nevertheless, this rate of rise was notably below the average rise of 1.32 percent sequentially seen in the month of July over the past seven years.

Meanwhile, core inflation came in at 0.45 percent sequentially, compared with 0.17 percent seen in June. The rate of increase in core inflation stayed widely the same as in June once accommodation costs are removed. The Reserve Bank of India underlined that it will exclude the component in their monetary policy considerations.

On a year-on-year basis, the headline inflation came in at a 9-month low of 4.17 percent in July. This weakness was driven by a less-than-expected rise in food prices and a supportive base. Core inflation also eased to 6.29 percent year-on-year from 6.39 percent in July. The prices of “household goods and services” and “recreational services” eased whereas education and healthcare costs edged up, noted ANZ in a research report.

The breadth of increase in CPI has also tapered markedly in the past three months. The number of items in the CPI basket which experienced sequential gains dropped for the third straight month in July.

“The softer-than-expected headline inflation print is a welcome development and should allow the RBI to abstain from further rate hikes in 2018. We do not foresee a further increase in the policy repo rate in the remainder of 2018”, added ANZ.