Retail inflation to cross 6%: HSBC

15 Jul '16

2 min read

Retail inflation is likely to cross the 6 % level over the next two months but will ease to 5% thereafter as food prices abate in the wake of a good monsoon and the base effect normalizes, according to global financial services major HSBC.

The inflation based on Consumer Price Index is expected to cross the 6 % year-on-year mark over the next two months thanks to a low base from last year, HSBC said in a research note predicting that it will turn towards RBI's target of 5 % September onwards “as food prices abate (if rains pick up) and the base normalizes."

It however remained skeptical whether softening in core prices would continue. Margin pressures faced by firms could eventually make their way to inflation if they decide to pass on higher input prices, the note observed.

Contending that improved monsoon from an 11 per cent deficit in June to a 1 per cent surplus in early July, was likely to have a positive effect, it said, "Rains over the rest of July will be critical in determining the trajectory of food inflation."

An action-packed July with a slew of events and data (announcement of the new RBI governor, Parliament session, rains) that will impact the economy for a long time to come," it said.

In the last monetary policy review in June, RBI Governor Raghuram Rajan kept interest rates intact, citing rising inflationary pressure, but hinted at a reduction later this year if good monsoon helped ease inflation.

The industry is still hopeful of further rate reduction from the central bank to boost investment. (SH)

Fibre2Fashion News Desk – India

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