Uneven rainfall across the country this year has hampered agricultural output, driving food costs higher. Indian households spend over 40% of their budgets on food.
Still, inflation remained within the Reserve Bank of India’s (RBI) 2%-6% target range, so the central bank kept interest rates unchanged this week, as was widely expected. The RBI flagged adverse weather-related events and uncertainty around global energy markets as key risks to its inflation outlook.
The August 5 to 7 Reuters poll of 40 economists forecast the inflation rate, measured by the annual change in the consumer price index (CPI), rose to 4.50% in July from 4.38% in June.
Forecasts for the data due on August 12 ranged from 3.96% to 5.50%.
“Food inflation remains on an uptrend even as underlying price pressures stay subdued,” said Kanika Pasricha, chief economic advisor at Union Bank of India.
“The improvement in monsoon activity during July though supported crop conditions but did little to ease near-term supply concerns,” she said.While the price of crude oil was volatile during the month, she said “the absence of any meaningful revision in domestic retail fuel prices is expected to limit the pass-through to consumer inflation.”
India’s state-run fuel retailers raised petrol and diesel prices four times in May in response to rising costs due to the U.S.-Israeli war with Iran. While a brief pause in the conflict pushed global crude prices lower, they were still about 20% above pre-war levels.
Core inflation, which excludes volatile food and fuel components and better reflects underlying demand, is expected to have been 4.08% in July. India does not publish official core inflation data.
Wholesale price index-based inflation likely remained elevated at 9.95% in July, roughly unchanged from June levels.
The RBI expects inflation in this financial year to average 5.0%, lower than its previous estimate of 5.1%. That was higher than the 4.8% predicted in a Reuters survey in July.