July 13, 2020 / 1:01 PM / a month ago

INSTANT VIEW 3-India's June retail inflation picks up to 6.09% y/y - govt

July 13 (Reuters) - India’s annual retail inflation rose to 6.09% in June compared with 5.84% in March, pushed by a bigger increase in prices of some food items, government data showed on Monday.

The government had suspended the release of inflation headline numbers for April and May due to inadequate data collection during a two-month lockdown.

COMMENTARY

MADHAVI ARORA, LEAD ECONOMIST, FX AND RATES, EDELWEISS SECURITIES, MUMBAI

“CPI inflation above 6% in June comes after the imputed prints of 7.22% and 6.27% for April and May, respectively, and thus depicts moderation in inflation dynamics since the beginning of FY21.”

“The moderation follows easing food inflation (albeit, still high at 7.9%), while core inflation inched up in June from the imputed prints in April and May. The uptick in core was led by sequential uptick seen in personal care and effects.”

“Overall, Q1 FY21 headline inflation is hovering ~6.5%, higher than the MPC tolerance band. However, we do reckon data glitches and supply shocks may have marred the quality of the release.”

SUMAN CHOWDHURY, CHIEF ANALYTICAL OFFICER, ACUITÉ RATINGS & RESEARCH, MUMBAI

“The Consumer Food Price Inflation (CFPI) has shown a declining trend from 9.20% in May to 7.87% in June, reflecting the easing supply pressures in food items consequent to the removal of lockdown in most parts of the country. The inflation, nevertheless, continues to be high for protein items namely meat and fish, as the supply chain therein is yet to revive.”

“While vegetable prices have clearly seen a softening, pulses and edible oil prices continue to be impacted by lower domestic production last year and disruption in imports in the current year.”

“Overall, we expect to see a steady decline in CFPI growth brought about by a robust output of the last rabi season and a healthy kharif harvest, given the favourable monsoon pattern as of now. Core inflation will continue to remain modest in the near term as the demand for non-food products is still limited and retail outlets are yet to operate fully in most parts of the country.”

ADITI NAYAR, PRINCIPAL ECONOMIST, ICRA, GURUGRAM

“The headline CPI inflation for June has exceeded the upper end of the MPC’s target range, posing a dilemma in terms of an appropriate policy response as the economy gradually extricates itself from the supply-demand shock created by the pandemic.”

“In our view, the MPC will choose to frontload its assessment of the space for further rate cuts, in a bid to support sentiment and hasten transmission amid the substantial surplus in systemic liquidity, although the decision is unlikely to be unanimous. We expect an asymmetric cut of 25 bps in the Repo rate and 35 bps in the Reverse Repo rate in the next policy meeting.”

SIDDHARTHA SANYAL, CHIEF ECONOMIST & HEAD RESEARCH, BANDHAN BANK, KOLKATA

“The retail inflation (CPI) print of 6.1% y/y for June came in about 50 basis points higher than expected. However, the upside surprise was due largely to food items and precious metals rather than reflecting higher core inflation.

“While the unlocking process during June helped lubricate the supply chain to an extent, we feel it might take a few more months to stabilise. During this period, volatility in inflation, especially for essential commodities, cannot be ruled out. Having said that, barring major weather-related disruptions, it is unlikely for inflation to reach a level of concern in the coming months, especially taking into account forecasts of a favourable monsoon.”

“On the other hand, given the prolonged lockdown in the economy and a sudden stoppage in economic activities, Q1 FY21 is set to sink deep into the negative zone. The full-year growth for FY21 is likely to remain materially negative as well, hitting a multi-decade low. While several policy initiatives have been triggered, recovery will be a slow and gradual process. Overall, policy looks well set to maintain its strong accommodative bias.”

SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI

“Headline inflation nudged above the RBI’s upper band of 6.0% over the past three months. The main drivers were fuel and food. As supply dislocations get restored with relaxations in the lockdown, the spike in food inflation will likely moderate. The rabi crop has been positive, and the kharif sowing is robust this year.”

“While core inflation ticked higher, the increase was narrowly driven. Indicative of large negative output gap, prices of household goods and services and recreation activities declined during the month. Despite remaining above 6%, it is important to note that headline inflation has eased since April 2020.”

“In our view, the recovering economy requires continued easy monetary conditions.”

A PRASANNA, HEAD-FIXED INCOME RESEARCH, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI

“CPI data has become unpredictable due to data collection issues. The April to June inflation numbers are higher than our estimates and seem to be driven largely by a jump in April food and non-food items. This may have been due to supply bottlenecks during the peak lockdown period. Subsequently, MoM increases have abated in May and June. Still, the yoy comparisons for headline and core are affected by the April rise.”

“As such these price rises should continue to abate as increasing supply and weak demand conditions play out. Still, uncertainty bands around inflation estimates have gone up and the MPC faces a dilemma when it next meets in August.”

“Growth outlook argues for further easing, while lack of clarity over inflation suggests a wait-and-watch approach. We expect the policy decision to be a close call. In any case we believe that space for rate cuts is tapering and we continue to pencil another 50 bps easing by end of the calendar year.”

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

“CPI inflation came in slightly higher than expected at 6.1% YoY in June versus our expectation of 5.9%. According to the Central Statistics Office estimates, CPI inflation is easing from its highest point in April at 7.2% YoY. This deceleration is a function of food inflation easing from 10.5% in April to 7.6% in June and reflects gradual unlocking of the economy from harshest lock-down rules in the first half of April.”

“Expect inflation to remain elevated in the next months due to (a) excess rains impacting supply of fresh vegetables, (b) fiscal pressure pulling up prices of fuel and intoxicants and (c) higher gold prices due to risk aversion. Easing of supply side issues in food due to strong sowing pattern and weak demand conditions will likely support disinflation beyond August.”

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI

“Today’s CPI print clearly shows the widening divergence between retail and producer prices due to disruption of supply chains and shortages. Food, fuel and services inflation - all together have contributed to the headline inflation in June.”

“Even core inflation has risen to 4.90%. This vindicates what I said in April that India is headed towards stagflationary conditions.”

SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI

“The CPI inflation print is much higher than expected and partly contributed by increase in prices of fuel and light, petrol, diesel, and most probably gold. Food inflation spike at 7.3% shows some of the strains in supply chain which should normalise if further widespread lockdowns are not announced.”

“Household goods and services as well as recreation segments’ inflation is quite benign showing the impact of both supply and demand restrictions.”

“Overall, while the headline print is a cause for concern, we should wait out for another couple of months to understand whether the price pressures are more structural. For now, it seems supply frictions, higher fuel prices, and uptick in precious metals prices seem to be the more dominant effect.”

RAHUL GUPTA, HEAD OF RESEARCH-CURRENCY, EMKAY GLOBAL FINANCIAL SERVICES, MUMBAI

“After two months, the government has released headline inflation data. The rise in headline CPI was mainly due to increase in food inflation which has been rising.”

“The inflation number is still above RBI’s upper band. The central bank’s rate cut decision will depend on growth more than inflation figure, because growth is still a worry. Going ahead ... as supply crunch reduces, we may see CPI falling below 6%.” (Reporting by Chris Thomas, Nivedita Bhattacharjee, Nallur Sethuraman, Derek Francis, Sachin Ravikumar, Anuron Kumar Mitra and Chandini Monnappa; Compiled by Shinjini Ganguli and Shounak Dasgupta)

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