Poll: India August CPI Seen At 4.8%; inflation pressures broaden

India’s headline inflation is likely to accelerate to 4.80% in August, from 4.45% in July, as food price pressures broaden and higher fuel and input costs begin to feed into other components, according to a poll of economists.

Estimates for August CPI range between 4.70% and 4.90%, with a median of 4.80%. Food inflation is seen at 5.80%, compared with 5.52% in July, with estimates ranging from 5.30% to 6.30%. Core inflation is expected to rise to 4.10%, from around 3.90% in July, with forecasts ranging between 4.00% and 4.37%.

 

 

The poll points to a further widening of inflation pressures, although economists differ on whether the increase is yet broad enough to warrant an immediate rate response from the Reserve Bank of India.

“Inflation has been steadily widening over last few months, and impact of energy shock was already seen in variety of goods that are part of core CPI. Food inflation pressures are also broadening out and shouldn’t be ignored,” said Abhishek Upadhyay, economist at ICICI Securities Primary Dealership.

Upadhyay said stronger-than-expected growth, elevated crude prices and higher global interest rates make a case for the RBI to move sooner rather than later. He also pointed to surplus liquidity as a factor that has eased monetary conditions.

The expected 35-basis-point rise in headline CPI from July would take inflation further above the RBI’s 4% target. Food inflation would rise by around 28 bps, while core inflation could increase by about 20 bps.

However, the composition of the increase will be critical for the October Monetary Policy Committee meeting.

Gaura Sen Gupta, economist at IDFC FIRST Bank, said core-core inflation, excluding gold and silver, estimated at around 2.4% in August should be watched for signs of “generalization” or a spread of inflation pressures from food and fuel into core items. She expects the RBI to remain on pause because the current shock is largely supply-side led.

Radhika Piplani, economist at Motilal Oswal Financial Services, also sees the August increase as largely food-led rather than broad-based. She said core inflation remains well contained, suggesting limited second-round pressures so far. Her base case is for the RBI to remain on hold in October and use other tools to manage surplus liquidity, with the probability of a rate hike rising in December or February.

QuantEco said the composition of inflation will be more important for the MPC than the headline number itself. It sees food inflation becoming somewhat more broad-based, with cereals, edible oils, sugar and some protein items warranting attention. It also sees early signs of firming in core inflation, although the underlying trend remains relatively stable.

The key risk is that food pressures spill into services and other non-food categories. Madhavankutty G, economist at Canara Bank, said elevated wholesale inflation would eventually have a lagged impact on CPI, while education, health, personal care, logistics and freight costs could keep non-food inflation sticky.

For monetary policy, a 4.8% August CPI with food inflation near 5.8% and core at 4.1% would strengthen the RBI’s hawkish bias but may not, by itself, trigger an October rate hike. The bigger concern would be a combination of a headline print approaching 5%, firmer core inflation and wider price pressures across goods and services.

QuantEco said an October hike would become a serious possibility if headline inflation moves above 5%, core rises towards 4.5% and granular data show a meaningful increase in price breadth.

The August print will therefore be less about whether inflation crosses 4% and more about whether the current food and energy shock is beginning to generate second-round effects. If that evidence emerges, the debate within the RBI could shift from whether to tighten policy to when.