India’s consumer inflation rate rose to a five-month high in August, while factory output remained sluggish, government data showed on Tuesday, suggesting the broader economy has yet to recover from the hit it took from the demonetisation decision on November 8 last year.
At 3.36% in August, the consumer inflation rate remains moderate, but retail prices are seen rising as demand picks up ahead of the festive season and food prices spike because of drought-like situation in many states.
The rise in August was higher than the 3.20% forecast by economists in a Reuters poll. Inflation rose to 2.36% in July, after falling for three straight months. The faster-than-expected rise in inflation has a bearing on the Reserve Bank of India, which is being nudged to lower interest rates in order to revive investment and growth that have gone sluggish in recent quarters.
Last month, the RBI cut its main policy rate by 25 basis points to 6%, the lowest since 2010, while keeping its policy stance at “neutral”. Analysts said a rise in inflation for two straight months has reduced the chances of another rate cut by the RBI, which has a central inflation target of 4%.
“We are of the opinion that RBI will not deliver any rate cut this calendar year,” Hitesh Jain, an analyst at IIFL Wealth Management, told Reuters.
Inflation had eased to 1.46% in June – its slowest pace since India started releasing retail inflation figures in January 2012, based on combined data for rural and urban consumers.
Retail food inflation, which accounts for about 54% of the consumer price index, rose 1.52% in August after prices contracted in the previous three months.
Latest data on industrial production, also released on Tuesday, showed industrial growth marginally improved to 1.2% in July compared to a contraction of 0.2% a month earlier. It was, however, sharply lower compared to 4.5% growth seen in July last year.
(with agency inputs)