Retail inflation hits eight-month high but rate cut still possible

Retail inflation hits eight-month high but rate cut still possible
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New Delhi: India's retail inflation hit a eight-month high in June on higher food prices, but stayed below the central bank's target, potentially giving it room for a further interest rate easing to boost slowing growth.

Annual retail inflation in June was 3.18 per cent, up from 3.05 per cent the previous month, but below analyst forecasts, government data showed on Friday.

A Reuters poll had predicted retail inflation at 3.20% for June.

Core consumer inflation, which strips out food and fuel prices, was estimated at an annual 4.09-4.11 per cent in June, marginally lower than May's 4.1-4.2 per cent, according to three analysts after seeing the inflation figures released on Friday.

"Food inflation trend is upwards while core is downwards, so the overall outlook on inflation is benign. The RBI will continue to maintain its accommodative stance and could do another 25-50 basis points rate cuts in this financial year," said Sujan Hajra, chief economist at Anand Rathi Securities.

Inflation has come down sharply from a peak of more than 12 per cent in 2013, and was below the Reserve Bank of India's (RBI) 4 per cent target for the eleventh consecutive month.

Comforted by subdued price pressures but concerned about faltering growth, the RBI has cut its policy rate three times since February.

In the most recent reduction last month, the RBI lowered its repo rate by 25 basis points to 5.75 per cent and changed its policy stance to "accommodative" to meet the needs of the economy and a banking system laden with bad debt.

Gross domestic product grew 5.8 per cent annually in the January-March quarter, the slowest in more than four years and well below the rate needed to create jobs for millions of young Indians entering the labour market each month.

The government this month projected annual growth of 7 per cent for 2019/20.

The combination of low growth and low inflation is particularly difficult for farmers, who benefit from higher food prices.

Retail food prices, which make up nearly half of India's inflation basket, increased 2.17 per cent in June from a year earlier, up from 1.83 per cent in May. Food prices began rising again in March after falling in the five months through February.

Monsoon rains have been below average so far and economists say inflation could pick up in coming months if a rain shortfall causes a spike in some food prices.

The RBI has raised its inflation outlook for April-September to 3.0-3.1 per cent from its April outlook of 2.9-3.0 per cent.

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