Progress on monsoons along with favourable base effect in 2HFY2017 continues to point towards RBI achieving its near 5 per cent inflation target by the year-end
India's annual consumer price inflation edged up to a slightly stronger-than-expected 5.77 per cent in June, mainly driven by higher food prices compared with 5.76 per cent in May, government data showed on Tuesday.
Separately, data showed India's industrial output unexpectedly rose 1.2 per cent in May from a year earlier, led by a pick up in manufacturing.
Economists surveyed by Reuters had forecast a 0.4 per cent fall in output compared with a provisional 0.8 per cent year-on-year fall in April.
Commentary
Upasna Bhardwaj, Economist, Kotak Mahindra Bank
"With Inflation coming in line with our expectations, we continue to retain our call for a 25 bps rate cut in CY2016.
"Progress on monsoons along with favourable base effect in 2HFY2017 continues to point towards RBI achieving its near 5 per cent inflation target by the year-end.
"The recent surge in global uncertainty and the increasing room for monetary accommodation by major central banks further lends credence to our view.
"However, we note that there is limited room for a rate cut in the August policy as RBI would be closely monitoring the higher than seasonal surge in vegetable prices along with the pace of monsoons.
"While the cumulative rainfall has improved to a surplus of 1 per cent from 11 per cent deficiency witnessed in June, monsoons in the rest of July and August are very crucial for kharif production."
Rupa Rege Nitsure, chief economist, L&T Finance Holdings
"Today's IIP (industrial output) and CPI indicate not very encouraging growth inflation dynamics.
"Capital goods - a proxy for investment sentiment - is still weak and seasonal factors plus base effect will keep upside bias in CPI for the period July to September.
"It will be difficult for the RBI to reduce the policy rate until a clearer picture emerges on the kharif performance and global outlook."
Anjali Verma, economist, Phillipcapital
"The uptake (in CPI) is largely because of food inflation, as was expected. Core inflation, though marginally lower year-over-year, on a month-on-month basis it is still on the higher side.
"Inflation overall will remain much above RBI's trajectory, unless we see a significant fall in vegetable prices and oil prices.
"On an average it should be hovering around 5.5 per cent and by March ending again it's expected to be probably closer to 6 per cent plus. All in all it looks quite elevated and therefore no interest movement is expected from RBI.
"IIP is better than my expectation. The only positive figure I could see is a lesser decline in consumer non-durables. Rest all were as expected."
A Prasanna, economist, Icici Securities Primary Dealership Ltd
"CPI inflation is slightly higher than expectation driven by food prices.
"However core inflation has softened a tad more to 4.52 per cent from our anticipated 4.60 per cent. This is a mildly positive data to the extent that it is driven by mainly food prices.
"However, it will take a few more months before CPI peaks out. As such our expectation is for RBI to maintain status quo on rates given 5 per cent CPI target for March 2017.
"Having said that clarity on the next RBI governor and composition of monetary policy committee would have a significant bearing on how monetary policy stance evolves going ahead."
Photograph: Rupak De Choudhury/Reuters