India’s August retail inflation accelerates as central bank struggles to rein in prices

India's August retail inflation accelerates as central bank struggles to rein in prices

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Vendors wait for customers at their respective shops at a retail market in Kolkata, India December 12, 2018. REUTERS/Rupak De Chowdhuri

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  • Annual food inflation 7.62% in August vs 6.69% in July
  • The central bank is expected to raise rates between 25 and 50 bps in September
  • Core inflation seen at 5.84%-5.9% in August vs 5.79-5.80%

NEW DELHI, Sept 12 (Reuters) – India’s annual rate of retail inflation accelerated to 7% in August, boosted by a surge in food prices, putting more pressure on the central bank to rise again. interest rates at the end of this month.

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) raised the benchmark repo rate (INREPO=ECI) by 140 basis points from May to 5.4%, including 50 basis points last month , with the aim of curbing consumer demand. read more

The government imposed restrictions on rice exports last week after restricting wheat and sugar exports earlier, to cool local prices as it fears poor rains in parts of the country could push up food prices. . read more

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The annual rate of inflation based on the consumer price index (INCPIY=ECI) of 7.00% in August broke a three-month downward trend, data released by the National Statistics Office showed, and exceeded the 6.9% forecast in a Reuters poll of economists. and that of July 6.71%.

Food inflation, which accounts for nearly 40% of the CPI basket, rose 7.62% year-on-year in August, up from a revised 6.69% in July.

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The MPC will hold its next monetary policy meeting on September 30 and is expected to raise the repo rate by between 25 and 50 basis points despite growing fears about its impact on economic growth, the economists said.

Sakshi Gupta, chief economist at private lender HDFC Bank, said rising grain prices remained a concern and could also increase pressure on headline inflation in September.

“The RBI is likely to raise rates by 50 basis points in the next policy as inflation pressures continue.”

Last week, India’s Finance Minister Nirmala Sitharaman said that India’s inflation management was driven by many factors, most of which were outside the realm of monetary policy. read more

Fuel and electricity prices rose 10.78% year-on-year in August, compared with an 11.76% increase in the previous month, the data showed.

Core inflation, excluding volatile food and energy prices, was estimated at 5.84%-5.90% in August, compared with estimates of 5.79-5.80% in July, two economists said. , after the publication of the data.

India does not publish core inflation data.

HIT OF HOMES

Rising food and fuel prices have hit poor households hard, already bearing the brunt of two years of the pandemic.

“We have reduced spending on vegetables,” said Puspanjali Sahu, a resident of the eastern Indian city of Bhubaneswar. “We are not going out to any restaurant, we are not going to watch movies in the movie theater.”

Indian oil companies have not conveyed the benefits of a drop in world crude prices, saying they suffered huge losses after a spike in prices following the Russian invasion of Ukraine.

Citing separate industrial production data released on Monday, Madan Sabnavis, chief economist at Bank of Baroda, said there was disappointment on both the growth and inflation fronts.

India’s annual industrial production in July rose 2.4% year-on-year, compared with revised 12.7% growth in the previous month.

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Additional reporting by Ira Dugal in MUMBAI, Rama Venkat, Chris Thomas, Nallur Sethuraman in BENGALURU, Jatindra Das in BHUBANESWAR; Edited by David Goodman, Philippa Fletcher and Hugh Lawson

Our standards: the Thomson Reuters Trust Principles.

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