What Economists Said On August Retail Inflation Rising To 7%

The annual retail inflation accelerated to 7% in August, snapping a three-month downward trend, driven by a rise in food prices, government data showed on Monday.

Analysts in a Reuters poll had predicted annual inflation of 6.9% in August, compared with 6.71% the previous month.

Kunal Kundu, India Economist, Societe Generale, Bengaluru

"Another inflation print of 7% bang in line with our expectation confirms our belief that price pressure is not going to go away anytime soon, although being a year-on-year print, inflation may be off the peak.

"Expectedly food prices moved up sharply as well. Given the tailwind generated by high food prices as production suffers due to erratic monsoon, we do not see consumers' cup of woes emptying out soon.

"We expect an additional 60 bps rate hike by the Reserve Bank of India (RBI) before they bring the rate hike cycle to an end as they shift the focus back to growth given the rather dismal employment situation."

Sakshi Gupta, Principal Economist, HDFC Bank, Gurugram

"Inflation for August is back up to 7% led by higher food inflation - particularly in cereals impacted by uneven monsoons. Core inflation continued to remain sticky close to 6%. Cereal inflation continues to be a concern and could lead to further pressure on the CPI print in September as well.

"The RBI is likely to raise rates by 50 basis points at the upcoming policy as inflationary pressures continue to linger. Moreover, while domestic conditions remain the primary focus for the RBI, aggressive tightening globally could nudge the central bank to continue front loading rate hikes as a defence for the currency and in turn imported inflation."

Garima Kapoor, Economist, Institutional Equities, Elara Capital, Mumbai

"August CPI inflation edged higher amid resurgence in food prices amid inclement weather and expected shortage of output of certain commodities like paddy. The uptick in food prices was however partly compensated by lower fuel prices.

"Going forward, CPI should track sub-6% trajectory by Q4FY23 as gains during recent commodity price correction begin to reflect in retail prices. We expect the monetary policy committee (MPC) to hike policy repo rate by another 25-35 bps in September policy before it pauses to assess the impact of rate hikes undertaken since May 2022."

Radhika Rao, Senior Economist, DBS Bank, Singapore

"Negative seasonality in select food groups, fallout of uneven rainfall and resultant uptick in cereals perked the food sub-component.

"Easing supply-side pressure (oil prices in particular) was a counterweight, while core inflation (ex food and fuel) ticked up to 5.8% y/y.

"The evolving inflation trend largely tracks the central bank's forecast for 2QFY23 and is unlikely to trigger a change in policy guidance. With base effects expected to perk the headline print in September and ease thereafter, we expect the central bank to moderate the quantum of rate hikes going forward."