Retail inflation eased sharply in July to 5.59% as food inflation moderated considerably, according to the official data.
The index of industrial production (IIP) grew 13.6% in June, primarily driven by the base effect (it had shrunk 16.6% in June 2020). The IIP still remained 5.2% lower than the pre-pandemic (June 2019) level, suggesting that a meaningful industrial recovery is still non afoot.
Commenting on the CPI and IIP data, Nish Bhatt, Founder & CEO, Millwood Kane International said, "After staying above the 6% mark for two months, the CPI inflation for the month of July cooled off to below 6% which is a 3-month low level.
The CPI inflation is down mainly due to softness in food, vegetables, pulses, and ease in the supply chain which was affecting prices. The July inflation at 5.59% is still below the RBI estimate of around 5.7% for FY22. The central would like the CPI inflation data to soften further though the current focus is supporting growth at any cost.
The June IIP data at 13.6% is mainly on account of ease in lockdowns, favorable base. The Industrial production data is expected to improve further as the vaccination drive covers a larger part of the population, Capex cycle picking up.A fall in inflation and recovery in IIP will help the central bank to continue with its Accommodative and easy monetary policy till growth picks up completely."
Moreover, Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services said, "July CPI lower than the consensus, June IIP broadly in line with market expectation. Headline CPI inflation stood at 5.6% YoY, lower than the Bloomberg consensus of 5.7% (and our exp. of 5.9%).
The primary reason for lower-than-expected inflation was entirely 'food' inflation, which fell to 3-month low of 3.9% last month (v/s our exp of 4.7%), compared to 5% in the previous two months.Core inflation (CPI less F&B, F&L and PT&I) eased from 6.2% each in the last two months to 6% YoY in Jul'21, same as per our exp.
Separately, IIP grew 13.6% YoY in Jun'21, similar to Bloomberg consensus (but lower than our exp of 17%). It implies that IIP grew 45% YoY in 1QFY22, following a fall of 35.5% in 1QFY21.
Overall, slightly lower-than-expected headline inflation was good news; however, trivial as far as policy decisions are concerned. The RBI has revised its FY22 inflation forecasts to 5.7% (from 5.1% earlier), while today's data suggests that it could average ~5.5% for the year. IIP suggests that real GVA growth of ~20% YoY in 1QFY22."
Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.
