India Inflation Likely Slowed In June As COVID-19 Lockdown Restrictions Ease: Poll

India's consumer price inflation likely eased in June from March, a poll by news agency Reuters predicted, as loosened coronavirus-led restrictions in most of the country drove a slight recovery in economic activity and helped reduce a supply crunch. The July 3-8 poll median of over 35 economists showed retail inflation in the country in June moderated to 5.30 per cent from a revised 5.84 per cent in March, still breaching the Reserve Bank of India's medium-term target of 4.00 per cent.

Headline inflation numbers were not released in April and May due to inadequate data collection owing to lockdown restrictions.

If the consensus is realised it would be the lowest inflation rate since November last year but would still exceed the central bank's mandate for a ninth consecutive month.

"The drop in inflation is caused by a marked increase in economic activity which ground to a halt during the lockdown phase and has only been recovering slowly as restrictions have been eased," said Hugo Erken, head of international economics at Rabobank.

A decline in price pressure might help the RBI, which has already cut its repo rate by a cumulative 115 basis points since the lockdown started on March 25, to stay on its accommodative path and ease policy further.

"The central bank's cautious assessment of growth prospects, normal monsoon and easing food pressures provide sufficient indication that inflation is likely to decelerate over the next few months," said Radhika Rao, economist at DBS Bank.

"The dovish policy bent is likely to dominate the panel's policy guidance, keeping the door open for further rate cuts."

Industrial output in the country contracted 37.8 per cent in May from a year earlier, the sharpest fall since current calculations began, mainly hit by falling infrastructure output which accounts for nearly 40 per cent of industrial production.

Infrastructure output contracted an annual 23.4 per cent in May, according to government data.