July Retail Inflation May Ease To A 5-Month Low: Barclays

The headline retail inflation is expected to ease to its lowest level in five months in July due to declining food prices as well as the lagged effect of a cut in fuel taxes, Barclays said.

"There is more evidence that inflation in India has peaked for now, and it is likely to slow faster than RBI's published trajectory, coming into the target band by October, according to our latest tracking estimate," Rahul Bajoria, chief economist at Barclays, said in a note.

The bank expects July inflation at 6.65% over a year ago, as compared to 7.01% in June and a near eight-year high of 7.79% in April. India is due to release July inflation data on Aug. 12.

The government had reduced excise duty on petrol and diesel in May to insulate consumers from rising prices.

"The RBI is likely to take some comfort in the fact that over the next two to three months, sequential momentum of inflation will moderate materially, as the lagged effect of falling prices for cooking oil, cooking gas, base metals and several foods have all moderated," the economist said.

Barclays expects food inflation to moderate to 6.6% in July, 100 basis points lower than in June, but said strong monsoons over the last month and flooding in parts of country may lead to some losses of perishable crops.

It however expects inflation to stay above the RBI's tolerance level. The RBI aims to maintain inflation at 4.00%, with tolerance levels of 200 basis points on either side.

(Editing by Vidya Ranganathan)