August inflation seen at 7%, rate cut unlikely

The headline inflation for the month of August is likely to rise 7 per cent year-on-year according to an NDTV poll of 15 economists. Poor rainfall in July may have pushed up food prices though fuel price inflation is likely to have remained flat, analysts said. Food and fuel costs make up over a third of the wholesale price index.

Core inflation is expected to remain close to 5 per cent, slightly lower than 5.4 per cent in July.

At 6.87 per cent, headline inflation had hit a three-year low in July, mainly on account of a steep drop in fuel inflation.
 
A rise in inflation may dim hopes of a rate cut on Monday, when the Reserve Bank of India meets to take stock of the monetary policy. The central bank is likely to hold policy rates for a fifth straight month, despite India's slowing economic growth.

The inflation rate has averaged a little over 7 per cent this year and although it remains above the RBI's perceived comfort level of 5 per cent, it is lower than the 9.52 percent average through 2010 and 2011.

The central bank has placed the onus on the government to pull the economy out of the rut and remove supply-side bottlenecks to ease inflation.
 
 
 
(With inputs from Thomson Reuters)