Rising food prices push India's August retail inflation to five-month high

India’s consumer price inflation rose more than expected to a five-month high in August, fueled by strong gains in prices of food items, dampening chances of a rate cut by the central bank in a policy review next month amid weak economic growth.

India’s consumer price index (CPI) INCPIY=ECI rose 3.36 percent in August from a year earlier, data released by the Ministry of Statistics on Tuesday showed.

Analysts polled by Reuters had expected CPI inflation would edge up to 3.20 percent, compared with 2.36 percent in July.

Last month, the Reserve Bank of India (RBI) cut its main policy rate by 25 basis points to 6 percent, the lowest since 2010, while keeping its policy stance at “neutral”.

Analysts said a rise in inflation for two straight months has reduced the chances of another rate cut by the Reserve Bank of India, which has a central inflation target of 4 percent.

“We are of the opinion that RBI will not deliver any rate cut this calendar year,” said Hitesh Jain, an analyst at IIFL Wealth Management.

The monetary policy committee (MPC) of the central bank had warned prices could start accelerating soon, reflecting caution, despite pressure to cut more aggressively after consumer inflation remained below its central target since October.

Inflation had eased to 1.46 percent in June – its slowest pace since India started releasing retail inflation figures in January 2012, based on combined data for rural and urban consumers.Separately, annual industrial output INIP=ECI grew at 1.2 percent in July, in line with the forecast by economists in a Reuters poll, the data showed.

Industrial output contracted 0.2 percent in June.

Asia’s third largest economy slowed to a three-year low in the three months to June, delivering a blow to Prime Minister Narendra Modi, who faces criticism for disrupting business activity with his shock cash squeeze last year.

LOWER FOOD OUTPUT

India’s food grain production is expected to fall this year following a decline in areas under plantation, following unfavorable weather conditions in some states.

Seasonal monsoon rains have caused damage to some crops and hit movement of goods.

“Looking ahead, price pressures are set to rise further,” said Shilan Shah, an economist at Capital Economics in Singapore.

Retail food inflation, which accounts for about 54 per cent of the consumer price index, rose 1.52 percent in August after prices contracted in the previous three months.