ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK
We had anticipated a decline in fuel inflation. But that it would come close to 5 per cent is quite of a surprise. There certainly has been good news, especially in terms of food and others. In non-food commodities, we had expected some traction to build up following a trend in global prices. That doesn’t seem to have happened. The uptake in manufactured product prices is a little distressing. We had anticipation in year-on-year inflation, but to such an extent.
There is a clear trend of a decline in headline inflation. If this trend continues, then it will build a case for monetary easing. But there are still key risks out there. We haven’t seen the effects of monsoon. We haven’t seen the hike in electricity prices reflect in the numbers along with a rise in fuel prices by the government for fiscal consolidation. So there are still many upside risks.
A. PRASANNA, ECONOMIST, ICICI PRIMARY DEALERSHIP LTD
This data cannot be taken as evidence that inflation is coming down. There are underlying risks. Crude prices have gone up, core inflation is higher, so this fall in inflation may be temporary. We still think it will be premature for the Reserve Bank of India to cut rates.
RADHIKA RAO, ECONOMIST, FORECAST PTE
Softer than expected July WPI print is likely to be perceived as a sign of easing inflationary risks, though we would be wary of revisions down the line, which could take the headline back above 7.0 percent. For the time being, this should partly calm nerves on possible runaway inflation, though thin supplies amid weak monsoon rains and increase in minimum support prices will exert upside pressures on food costs down the road.
Weak rupee and adjustment in fuel prices also provide little comfort. Overall above-tolerance WPI and retail inflation will keep RBI wary on the policy front, with consumption sector's performance in Q2 GDP and August inflation numbers ahead of September review to also dictate policy direction. RBI will be unable to completely sidestep weak growth outlook and we retain our call for 50 bps cuts by end-FY.
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA
While headline inflation has eased significantly in July on the back of an overall economic slowdown, the core inflation has sequentially risen by 59 basis points to 5.44 per cent. Furthermore, a large part of inflation easing has happened because of administered prices of the fuel component. In my opinion, the next RBI policy action will be contingent upon some concrete fiscal steps to curtail fuel subsidies.
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK
Risks for inflation still remain on the upside. Some pressure on primary articles, in pulses and oilseeds, is likely to continue. In manufacturing, a weaker rupee and higher Brent prices are likely to exert pressure and the product price trajectory is not comforting.
We expect inflation to be 7.5-8.0 per cent this year, and also growth is likely to have downside risks. The April-June growth data could be in the range of 5.0-5.5 per cent, and if it is so, then growth concerns at some point need to come under the central bank's consideration.
We expect some monetary action in September or October policy. But it will also depend on how rains play out completely.
With inputs from Thomson Reuters 2012