Consumer inflation in June at record low of 1.54%

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HIGHLIGHTS

  • Consumer inflation in June cooled to a new record-low of 1.54 percent
  • In May consumer price inflation stood at 2.18 percent
  • June’s inflation figure is the lowest since the series began in 2012.

NEW DELHI: Consumer inflation in June cooled to a new record-low of 1.54 per cent, driven by a drop in food and oil prices, government data showed on Wednesday. In May consumer price inflation stood at 2.18 per cent, which was also a record low. Analysts believe this will intensify pressure on the RBI (Reserve Bank of India) to cut interest rates.

A Reuters poll of over 30 Economists had expected consumer prices to cool to 1.70 percent.

June’s inflation figure is the lowest since the series began in 2012 and below the RBI’s medium-term target of 4 percent for an eighth successive month. Core inflation, however, has remained stubbornly above 4 percent since at least 2015.

Food and beverage price index, which accounts for nearly half the consumer price index basket, shrunk 1.17 percent in June. Vegetable prices fell 16.53 per cent during the reporting month from last year, while the price of pulses fell nearly 22 per cent.

Last week, India’s weather office, the India Meteorological Department (IMD) said that the nation’s cumulative rainfall between June 1 and July 2 was 6 per cent above the long-run average. Monsoon showers, which deliver about 70 percent of India’s annual rainfall, help drive higher food and grain production, keeping inflation in check.

The RBI kept its benchmark interest rate unchanged in June while softening its hawkish stance following a drop in retail inflation.

The central bank also lowered its headline inflation forecasts to a range of 2.0-3.5 percent for the first half of the fiscal year 2017-18 and 3.5-4.5 percent in the second half, down from 4.5 per cent and 5.0 per cent, respectively.Separately, industrial output rose 1.7 percent in May after growing 3.1 percent in April due to weaker performances in manufacturing, mining and power generation. The Reuters poll had expected IIP (Index of Industrial Production) to come at 1.9 percent for May.

The tepid factory output data could further bolster the case for a RBI rate cut+ next month to boost India’s economy, which grew 6.1 percent in the January-March quarter, its weakest pace in more than two years.

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