|12 June, 2019

INSTANT VIEW- India's May retail inflation picks up to 3.05% y/y

Core inflation ex-commodities is at 4.7%.

Vendors wait for customers at their respective shops at a retail market in Kolkata, India, December 12, 2018.

Vendors wait for customers at their respective shops at a retail market in Kolkata, India, December 12, 2018.

REUTERS/Rupak De Chowdhuri

BENGALURU- India's annual retail inflation picked up in May to 3.05% to hit a seven-month high, compared with revised figure of 2.99% in April, government data showed on Wednesday.

Analysts polled by Reuters had forecast May's annual increase in the consumer price index at 3.01%. 


"Core inflation ex-commodities is at 4.7%. Inflation trajectory is rising which is just a normalisation of food inflation specially in categories like vegetables and pulses. Outside these commodities, food inflation is quite benign. Core inflation is easing gradually so there's comfort."

"While inflation numbers will rise, the dynamics of inflation remain benign and it should not hinder the chances of a rate cut which we expect in the next policy."

ANAGHA DEODHAR, ECONOMIST, ICICI SECURITIES, MUMBAI "Both headline and core numbers are in line with our expectations. Most of the sequential increase in headline inflation is driven by rising food prices."

"We expect food prices to continue inching up which could pose upside risk to MPC's forecast. We expect average inflation in H1FY20 to come in at around 3.3% and H2 at 4.2%."

"Hence, we expect inflation in FY20 to average 3.8% which is much higher than RBI's forecast. Although there's a strong chance of 25bps rate cut in August, rising inflation thereafter could limit further room for rate cut."

DEVENDRA PANT, CHIEF ECONOMIST, INDIA RATINGS, NEW DELHI "If you look at the core inflation which excludes food, energy and transport and communication, it has fallen below 4.4% which is a 23-month low. This means that demand is pretty weak. There is one more scope of a rate cut this fiscal year but that would depend on the budget in July, and factors like fiscal stimulus and monetary stimulus."

TUSHAR ARORA, SENIOR ECONOMIST, HDFC BANK, NEW DELHI "While food inflation has been rising, the moderation in core inflation has capped the overall inflationary pressures in the economy."

"Whether the slowdown in domestic demand pulls down the core inflation further or the pressure on food further weighs during the summer months, will be an important trend to watch out for in the next few readings."

"The likelihood of moderation in core inflation is higher and thus, we believe that overall inflation would remain subdued, allowing the central bank to cut the policy rate yet again."

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI "IIP growth came ahead of expectations. But given the inherent volatility of monthly numbers, this substantially does not change the subdued outlook for H1FY20."

"We think the government would continue to focus on growth through different measures, including tax cuts and increased welfare related spending. RBI, too, would maintain accommodative liquidity and interest policy stance."

(Reporting Chandini Monnappa, Chris Thomas and Arnab Paul in Bengaluru; Editing by Rashmi Aich) ((chandini.m@thomsonreuters.com; +91-82-6749-7919; Reuters Messaging: chandini.m.thomsonreuters.com@reuters.net))

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