Inflation in Sept at 3.28%, IIP in Aug at 4.3%: Do not expect RBI to cut rate in near term; experts decode

Analysts polled by Reuters had expected retail inflation to edge up to 3.60 percent last month from 3.36 percent in August.

India’s industrial output grew 4.3 percent in August from a year earlier, government data showed.

Economists surveyed by Reuters had forecast 2.4 percent growth in output compared with a revised 0.9 percent year-on-year increase in July.

Experts weigh in with their views

Rupa Rege Nitsure, Group Chief Economist, L&T Finance Holdings, Mumbai

Contrary to street expectations, Consumer Price Index (CPI) has fallen sequentially despite the fact that favourable base effect has unwound. This primarily reflects

Representational image. AFP.

Representational image. AFP.

weaknesses in aggregate demand. Even services inflation has moderated marginally. Primary contributors to September inflation are housing and fuels categories, which have hardened due to HRA effect on housing & global crude price effect on fuel prices. This means inflation trajectory remained well below the Reserve Bank of India (RBI) target in H1, FY18.

Yet, the chances for rate cut look distant as Index of Industrial Production (IIP) growth has accelerated to 4.3 percent, albeit due to a favourable base effect in capital goods & mining sectors. In my opinion, IIP growth will not sustain at this level, as base effect will keep shifting. My IIP forecast was 5 percent - closest to the actual.

Hitesh Jain, Associate Vice President - Research, IIFL Wealth Management, Mumbai

There is no room or scope for further easing rates for at least 3-4 months. The RBI may take a call in March since it clearly sees inflation scaling higher. Rising energy prices and implementation of farm loan waivers aggravates the inflationary pressure. All this will basically impart upside risk to the baseline inflation trajectory. The spike in inflation in August was basically due to a rise in vegetable prices and food commodities ahead of the festive season. Now we see some moderation in food prices. There will be improvement in aggregate demand for commodities during festive season. People also attributed the spike in retail inflation in August to Goods and Services Tax (GST). I think the picture has to evolve, because the government is still contemplating changes to GST.

Radhika Rao, Group Economist, DBS, Singapore

The pullback in food prices overwhelmed the uptick in non-food components, including the higher housing segment. Headline is well within the central bank’s estimate of 2-3.5 percent range for 1H17. Meanwhile, core inflation at 4.6 percent continues to outpace the headline reading, which might reinforce the central bank’s neutral stance. October’s inflation might also soften on seasonality and base effects, feeding into rate cut expectations.

Anjali Verma, Economist, PhillipCapital India, Mumbai

The number is better than our expectations. The lower-than-expected inflation number in September is primarily driven by a contraction in food inflation. Going ahead, the key driver of inflation will be oil. But, we also need to keep an eye on food prices. While we have a status quo stance on interest rates, continuation of muted inflation may open up room for rate cut.

Updated Date: Oct 13, 2017 07:50 AM

Also Watch

Social Media Star: Abhishek Bachchan, Varun Grover reveal how they handle selfies, trolls and broccoli
  • Monday, July 16, 2018 It's a Wrap: Soorma star Diljit Dosanjh and Hockey legend Sandeep Singh in conversation with Parul Sharma
  • Monday, July 16, 2018 Watch: Dalit man in Uttar Pradesh defies decades of prejudice by taking out baraat in Thakur-dominated Nizampur village
  • Monday, July 16, 2018 India's water crisis: After govt apathy, Odisha farmer carves out 3-km canal from hills to tackle scarcity in village
  • Sunday, July 15, 2018 Maurizio Sarri, named as new Chelsea manager, is owner Roman Abramovich's latest gamble in quest for 'perfect football'

Also See