Retail Inflation Data Suggests No More Rate Cuts This Year: Experts

Mumbai: India's annual consumer price inflation edged up to a stronger-than-expected 5.76 per cent in May, driven by higher prices of food and fuel products, government data showed on Monday.

But core annual consumer price inflation slowed to around 4.7 per cent in May, down from around 4.9-5.1 per cent in April, according to a snap Reuters survey of three analysts.

COMMENTARY

Arvind Chari, head of fixed income and alternatives at Quantum Advisors, Mumbai:

"The CPI for May at 5.76 per cent is in line with our internal expectations, but higher than market consensus.".

"We had expected this on the back of higher food and fuel prices. And with the data that we are seeing currently, food prices have risen in June also. So we expect near-term CPI numbers to remain high and the hope for it to fall is really on monsoon and its impact on pulses and vegetables."

"If food prices do reverse, then it might keep hopes of one rate cut alive, but our base case view has been that we are in for a long pause at 6.5 per cent (repo rate)."

Madhavi Arora, economist, Kotak Mahindra Bank, Mumbai:

"We were little bit surprised that the food inflation came in above expectation. So across the board you saw increases in food prices. It's likely that the next month will also probably show the same ominous structure."

"On the non-food side, the core inflation side, most of the categories have shown lesser-than-expected month-on-month increase. The only shocker was the personal care component, which came in higher than expected."

"It seems that the next month's reading may also largely reflect this month's number or be marginally lower. We are looking at this point close to 5.6-5.7 percent kind of a range for next month as well."

A Prasanna, economist, ICICI Securities Primary Dealership Ltd, Mumbai:

"The headline is above our estimate, but core CPI has actually come in slightly softer, implying that the surprise was driven entirely by the food basket."

"While there are some seasonal factors at play, structural mismatches are also evident in the rise in protein inflation."

"Although underlying inflation may be more stable, headline is unlikely to decline back to 5 per cent, within RBI's forecast horizon, should the government go ahead and implement pay hikes for bureaucrats."

"We stick to our call of no more rate cuts in this financial year."

Devendra Kumar Pant, chief economist, India Ratings and Research, Delhi:

"Chances are that in June we may see a reading which may be marginally higher than what we are seeing. The price of pulses haven't cooled off, oil prices are hardening in the global economy."

"The problem will come in the month of July because when we enter July we'll have a very low base whereby last year July CPI inflation was 3.8 per cent."

Rupa Rege Nitsure, group chief economist, L&T Finance Holdings, Mumbai:

"It is a very worrisome figure because if you remember last year in May, vegetable and food prices had spiked because of hailstorm and unseasonal rains. The base effect was favourable. So if on a higher base inflation has risen this much, it means the June number is going to be much uglier. In June there will not be a support from the base."

"RBI's warning of upside bias (on inflation) was timely, and market participants should factor that in before developing irrational expectations of policy rate easing."

"Going forward, RBI's focus will remain more on management of liquidity rather than rate action."

Shubhada Rao, chief economist, Yes Bank, Mumbai:

"Month-over-month the momentum is worrisome. Due to a prolonged and intense summer there is pressure on perishable items, in terms of cereals, oils, and pulses, which from April have begun to firm up."

"It will have to be government and timely monsoon which can together have some disinflationary impact from July-August. But until then, this trajectory is clearly something that would worry."

"The pace of acceleration has been fairly quicker. So for it to come down, you will need to see a serious momentum of disinflation around monsoon time for items, particularly food."

"These two prints of April and May and likely into June are going to make RBI even more watchful in its willingness to cut rates."