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Indian headline inflation accelerates modestly in August, RBI likely to cut policy rate by 40 bps in October
Indian headline inflation accelerated modestly in August. On a sequential basis, the consumer price index dropped to 0.49 percent sequentially in August, down from 0.91 percent in the prior month. Nevertheless, the annual print rose to a 10-month high of 3.21 percent year-on-year, greatly reflecting a lower base.
Food price inflation continued to be the driver rising 2.96 percent year-on-year as compared with 2.33 percent seen in the prior month. Vegetable prices rose 6.9 percent year-on-year as compared to 2.82 percent in July. In the meantime, the fuel component dropped further in line with weaker domestic fuel prices.
Core inflation softened again after picking up for the first time in nine months in July. There was a widespread easing throughout all the major components in annual terms, except the “personal care and effects” category, which includes gold and silver. Inflation in this category rose 6.38 percent year-on-year compared to 4.30 percent in July led by gold which saw a 25 percent increase in prices in the month. Core rate excluding gold eased to 3.96 percent from 4.16 percent in July.
In all, the data released today came in below market expectations, implying that price pressure remain widely weak. The combination of inflation remaining well below the central bank’s medium-term target of 4 percent and output gap widening on slower growth paves way for further monetary easing, said ANZ in a research report.
“We now expect the RBI to cut the policy repo rate by 40bps to 5.00 percent at its upcoming meeting on 4 October”, added ANZ.