Economy
Base effect likely to lower July inflation to 3.6%: Mint poll
Summary
Among the 21 economists polled by Mint, inflation projections ranged from 3.10% to 4.53%, with only one of them expecting it to come above 4%.NEW DELHI : India’s retail inflation is expected to have dipped below the Reserve Bank of India’s medium-term target of 4.0% in July, marking the first time since September 2019. The Consumer Price Index (CPI) inflation is expected to drop to 3.6% in July from 5.1% in June, primarily due to the statistical effect of a high base last year, according to a median estimate of 21 economists polled by Mint.
"With the year-on-year inflation pulled lower by base effects, it will be more constructive to look at momentum in prices to understand the extent of inflationary pressures," said Barclays in a report earlier this week. Inflation had jumped to 7.44% in July last year, which forms a favourable base for inflation this year.
Economists’ median projections suggest that a month-on-month increase of 1.5% in CPI despite year-on-year inflation declining sharply.
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Inflation projections from economists ranged between 3.10% and 4.53%, with only one forecasting an inflation rate above 4%. The official data will be released on 12 August.
In recent months, food prices have been the primary driver of inflation, creating uncertainty about its future trajectory. Food, which makes up 40% of the inflation basket and has seen over 8% inflation since last November, is also expected to benefit from the base effect in July.
Economists caution that the base effect's relief will be short-lived, which is why the Monetary Policy Committee remains cautious about cutting interest rates. Reserve Bank of India (RBI) governor Shaktikanta Das on Thursday reiterated concerns about high food inflation potentially spilling over into core inflation, with the RBI maintaining its FY25 inflation projection at 4.5%.
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Core inflation, which excludes food, fuel, and light, has been below the 4.0% mark for several months. However, it rose slightly in June for the first time since January 2023, indicating the impact of reversing commodity prices. Economists expect another rise in July due to higher gold prices and telecom tariff hikes.
