India’s August retail inflation was slightly higher than economists’ expectations on the back of a sharp rise in vegetable prices, according to government data released on Thursday.

Annual retail inflation was 3.65 per cent in August, compared with a revised 3.60 per cent in July. Economists polled by Reuters had forecast August inflation at 3.5 per cent.

Aditi Nayar, Chief economist, head research and outreach, ICRA, Mumbai, said, “With the base effect normalising, we anticipate a sharp pickup in the CPI inflation to ~4.8 per cent in September 2024, and range between 4.4 per cent and 4.7 per cent in H2 FY25.

“Notwithstanding the anticipated hardening in September 2024, the average CPI inflation will undershoot the MPC’s second quarter of the financial year 2025 (Q2 FY25) estimate of 4.6 per cent.”

“With the first quarter of the financial year 2025 (Q1 FY25) GDP growth print, having undershot the MPC’s forecast for the quarter, a change in stance in the October 2024 policy meeting can’t be entirely ruled out.”

Kunal Kundu, India economist, Societe Generale, Bengaluru, said, “The ongoing weakness in core inflation is unsurprising, given the modest domestic demand situation, with real wages still below pre-pandemic levels and virtually stagnant job growth.” “Despite food price inflation averaging 6.6 per cent since the onset of the pandemic, India’s real agricultural wage remains barely positive, while real non-agricultural wage has been contracting for several months.”

“The reality is diverging from traditional economic theory, and we feel that the central bank should place greater emphasis on core inflation rather than solely focusing on headline inflation when making monetary policy decisions.”

Sachchidanad Shukla, Group Chief Economist, Larsen and Toubro, Mumbai, said, “The RBI will look through this if on-the-ground food prices see a salutary effect from recovery in monsoon in recent weeks.”

Yuvika Singhal, Economist, Quanteco Research, New Delhi, said, “We believe that RBI is headed towards monetary easing and anticipate a monetary policy pivot in the third quarter of the financial year 2025 (Q3, FY25), with December 2024 marking the beginning of a shallow rate cutting cycle.”

“Of the possible 75 bps of downward adjustment in policy rates, we expect 50 bps could be delivered in in the second half of the financial year 2025 (H2 FY25).

October 2024 policy and the minutes too will be closely watched for the stance and views of the three new external members who will be joining the MPC.”

Sujan Hajra, chief economist and executive director, Anand Rathi Shares And Stock Brokers, Mumbai, said: “Recent inflation readings have consistently come in below the projections of the Reserve Bank of India (RBI), indicating a softening trend.”

“Despite this easing of inflationary pressures, lower-than-expected GDP growth for the quarter ending June 2024 and the likelihood of a rate cut by the US Fed, we expect the RBI to maintain its current policy rate for now. However, the central bank’s stance and forward guidance are likely to turn more dovish, signalling potential future easing.”

Upasna Bhardwaj, chief economist, Kotak Mahindra Bank, Mumbai, said: “The slight uptick in August inflation was largely led by the surprise on food prices, while core inflation remained steady. Overall, the second quarter average inflation appears to be lower by 60 basis points than Reserve Bank of India’s estimate of 4.4 per cent.  However, we continue to expect full year estimate at 4.5 per cent and hence Reserve Bank of India to remain focussed on inflation over the next few months. “Meanwhile, given benign global conditions and persistent easy liquidity conditions we see high probability of a change in the policy stance to neutral in the upcoming policy.”

Swati Arora, economist, HDFC Bank, Mumbai, said: “Core inflation has bottomed out and is expected to rise going forward, perhaps moving above 4 per cent over the coming months reflecting higher gold prices, improvement in pricing power and recovery in demand. Besides, a low base is also likely to weigh on core inflation reading. For the full year, we continue to expect CPI to average at 4.6 per cent.”

Radhika Rao, senior economist, DBS Bank, Singapore: “High frequency data for food was pointing toward a moderation in the sequential prints, which along with base effects have softened the headline print in the month. As it stands, Reserve Bank of India’s forecast for the quarter is likely to be undershot by 40-50 basis points.”

“The data is unlikely to be of consequence for the central bank, as the governor had signalled that July-August will be looked through.”