Key facts
- Indian consumer inflation is projected to have risen to 4.50% in July.
- Food prices are a key driver of the expected inflation increase.
- The Reserve Bank of India (RBI) maintained its interest rates this week.
- Core inflation is estimated to have been 4.08% in July.
- Wholesale price index-based inflation was around 9.95% in July.
Indian consumer inflation is expected to have risen in July for the second consecutive month, driven by higher food prices due to uneven rainfall impacting agricultural output. A Reuters poll of 40 economists forecasts the Consumer Price Index (CPI) to reach 4.50% in July, up from 4.38% in June. Despite this increase, inflation is anticipated to remain within the Reserve Bank of India's (RBI) target range of 2%-6%. The RBI kept its key interest rates unchanged this week, a widely expected decision, while flagging weather-related events and global energy market volatility as risks to its inflation outlook.
Forecasts for the July inflation data, due to be released on August 12, varied between 3.96% and 5.50%. Analysts noted that food inflation is on an uptrend, even as underlying price pressures remain subdued. While improved monsoon activity in July supported crop conditions, it did not immediately ease near-term supply concerns. The volatility in crude oil prices during July is not expected to significantly impact consumer inflation due to a lack of substantial revisions in domestic retail fuel prices. India's state-run fuel retailers had increased petrol and diesel prices in May, influenced by rising costs linked to geopolitical tensions involving Iran.
Core inflation, which excludes volatile food and fuel components, is projected to have been 4.08% in July. Wholesale price index-based inflation is also expected to have remained elevated, at approximately 9.95% in July, similar to June levels. The RBI's inflation forecast for the current fiscal year has been revised slightly downwards to an average of 5.0%, from its previous estimate of 5.1%.