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India's July inflation eases to 6.71% as some commodity prices fall

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BENGALURU, Aug 12 (Reuters) - India's consumer inflation dipped to 6.71% in July, easing for the third month in a row, helped by a slower increase in food and fuel prices and adding to expectations that the central bank may rein in the pace of its policy rate hikes next month.

The year-on-year figure, published on Friday by the National Statistics Office, was marginally lower than the 6.78% forecast by economists in a Reuters poll. But it remained above the central bank's 2%-6% tolerance band for a seventh month in a row. read more

COMMENTARY

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

"Inflation coming in slightly lower than our and market expectation suggests expectation of continued price pressure is not unfounded."

"As things stand now, headline inflation appears to be in line with our FY23 expectation of 6.5% y-o-y. While food inflation eased a tad, core inflation inched up and topped 6.0%, an indication of persistence of price pressure suggesting a rather slow pace of easing of headline inflation."

"We do see inflation easing adequately in 2023 and stick to our expectation of one final rate hike of 35bp by RBI during October."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"July CPI was lower than expectations, largely led by weaker vegetables. Mean reversion of inflation in the food and fuel basket can lower headline CPI by 1.5ppt, which we expect will occur over the next 6-8 months. Government intervention and moderation in global commodity prices has arrested input price momentum."

"However, the inflation risk now sits in India's wide trade deficits, which is partly due to lopsided trade policies and needs urgent correction/offset. Until then, RBI cannot rest easy on inflation outlook."

UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

"CPI headline inflation for July has moderated in line with our expectations, led largely by food inflation, while the core inflation remains elevated and sticky."

"The coming few readings are expected to be a tad above 7% with inflation likely to hover above RBI's upper threshold limit of 6% until January 2023. We expect repo rate at 6% by end of 2022, followed by a pause and a shift to neutral policy stance."

ADITI NAYAR, CHIEF ECONOMIST, ICRA LTD, GURUGRAM

"Given the base effects, we caution that the next two CPI inflation prints could rise slightly from the 6.7% seen in July 2022, in spite of which we believe that the average inflation for the ongoing quarter will modestly trail the MPC's projection of 7.1%."

"Given the MPC's focus on anchoring inflation expectations and the governor's statement on inflation moving closer to the target of 4.0% over the medium term, we expect another rate hike of ~10-35 bps in the September 2022 policy meeting. Thereafter, we believe the MPC is likely to be extremely data dependent."

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI

"Friday's IIP growth and CPI inflation prints present an improved growth-inflation mix. The upcoming festival season and the recent easing of global food and energy price inflation have improved the growth prospects to some extent. While some headwinds are expected from the external sector, India's large dependence on domestic consumption and investment will shield the economy to a greater extent than expected by the Street."

GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI

"July CPI inflation moderated amid subdued uptick in food prices and impact of lower oil prices. While CPI inflation will continue to remain above RBI's tolerance band through this calendar year, decline in global commodity prices, peak out of DXY and turnaround in FII flows in Indian equity market would allow greater policy leeway for MPC to undertake less aggressive hikes from hereon."

"We expect MPC to hike policy repo rate by another 25 to 35 bps before they pause to assess the impact of 140 bps hike."

SREEJITH BALASUBRAMANIAN, ECONOMIST, IDFC AMC, MUMBAI

"July headline CPI of 6.7% y/y was down from 7% in June and was primarily driven by much lower momentum in food prices as expected. Sequential momentum in core inflation was higher from last month but eased year-on-year."

"While real-time prices of edible oils continue to ease till date in August, that of cereals (rice and wheat), pulses and some vegetables have started to move up. Food inflation alongside crude oil price and pass-through of costs by producers would define inflation in the near term while growth and supply chain pressures will in the medium term."

Reporting by Rama Venkat, Nallur Sethuraman and Tanvi Mehta in Bengaluru; Editing by Devika Syamnath
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