India's August inflation likely to inch up a tad

India's July 2015 CPI (as per the new series) experienced a sharp spurt of 2.14% mom, the second-highest monthly increase in this series. This was caused mainly by the huge rise in vegetable price inflation, a monthly increase of 6.7%, which accounts for 62% of the monthly increase in headline inflation. 

"India's headline CPI for August 2015 will likely print at around 3.85% yoy, a touch higher than the July 2015 CPI prints of 3.78% yoy. The potentially benign inflation in August, however, does not indicate a reversal of the rising trend, though we are confident that it will not rise to alarming levels. It would, however, be mostly due to with the base effect", forecasts Societe Generale.

That apart, the monsoon still remains a concern. As the initial euphoria of above -normal rainfall during the first three weeks of June gave way to despair following a notable rainfall deficiency in the subsequent four weeks, concerns started to rise about the impact of deficient rainfall on food and hence on headline inflation. 

As per the existing data made available by IMD (India Meteorological Department), monsoon deficiency up to last week was around 12% of the LPA (Long Period Average) with a potential for the deficit to increase further. Furthermore, certain parts of the country are facing serious drought conditions. 

"This may spell trouble for crops already sown, especially oil seeds and pulses whose prices can surge quickly. Nevertheless, while there are some potential tailwinds for inflation, the headline inflation will remain well within RBI's immediate target of 6% by January 2016", added Societe Generale.