India’s retail price inflation quickened for the third straight month, raising expectations that the central bank could consider tightening monetary policy next month.
Consumer prices rose 5% in June from a year earlier after a 4.87% increase in May, the Statistics Ministry said in a statement on Thursday. The median of 43 estimates in a Bloomberg survey of economists was for a 5.28% gain. Industrial output, meanwhile, expanded 3.2% in May, the slowest in seven months, compared with an estimated 4.4 % gain.
The Reserve Bank of India increased interest rates by 25 basis points (bps) in June and said future rate actions would be data-dependent, including the impact of farm support prices on consumer prices, crude oil movements and higher allowances to government employees.
Inflation has been hovering above the 4% midpoint of the central bank’s target band for eight straight months, and the quickening of the gauge in June to a five-month-high will boost calls for a further tightening of interest rates. Oil trading near the highest levels since 2014 and persistent weakness in the rupee also add to the pressure.
According to the Reserve Bank of India’s April monetary policy report, a 5% depreciation in the rupee may fan domestic inflation by about 20bps. It also expects oil averaging around $78 a barrel to stoke inflation by 30bps.
Food and beverage prices rose 3.18%
Clothing and footwear rose 5.67%
Fuel and lighting rose 7.14%
Housing rose 8.45%
Figures due on Monday will show India’s wholesale price inflation rate was probably 5.23% in June from a year earlier.
Manufacturing sector output, on the other hand, degrew to 2.8% in May compared to a 5.2% rise in April. RBI had warned of a slowdown in industrial activity in the first quarter of current fiscal in its June monetary policy review.