Easing inflation

A good monsoon this year, and as a result greater area under crops, raises hopes of a drop in food inflation, but core inflation continues to remain sticky

Inflation has now been above the official March 2017 target for four months in a row. Much of the recent acceleration in prices has been driven by food. The good monsoon this year, as well as the sharp increase in cultivated area under pulses, raise hopes that a drop in food inflation will drive down the headline number from August. Vegetable prices could retreat from a high base last year. Is India on the cusp of another round of disinflation?

It is too early to say for sure; core inflation, which excludes volatile food and fuel prices, has been sticky around current levels for a long time. Strong consumer demand combined with minimal new capacity creation in industry will help companies protect their pricing power.

In a recent note, economists at Citi India say they expect consumer price inflation for August to once again go below the March 2017 target. That would be a relief for new Reserve Bank of India governor Urjit Patel.