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Financial News: India CPI Inflation Likely To Rebound Over Coming

India CPI Inflation Likely To Rebound Over Coming Months

06/14/2017 - 10:15:00 (RTTNews)

(RTTNews) - India's consumer price inflation is close to bottoming out, and is likely to begin rising over the coming months as core price pressures build, thus justifying the central bank's current reluctance to cut interest rates, Shilan Shah, an economist at Capital Economics, said.

Official data released last week showed that consumer price inflation eased notably to 2.2 percent in May from 3.0 percent in April.

The downward trend in inflation was mainly due to another big fall in food inflation, which was -0.2 percent in May.

The fresh fall in inflation is likely to raise the clamor for policy loosening by the Reserve Bank of India on its next policy meeting scheduled for the start of August, Shah said.

"Indeed, it would be foolhardy to totally rule out a rate cut given that inflation is now close to the lower bound of the RBI's target range," the economist commented.

"But we doubt that the weakness will last."

In any case, the RBI is more focused on core inflation, which also looks set to rise, Shah said. In May, the core inflation eased only slightly to 4.2 percent from 4.3 percent, he reckoned.

The economist expects the finance ministry's FY17/18 fiscal deficit target to come under pressure, particularly given the recent farmer loan waivers announced by various state governments. This may force the central government to provide financing, thereby boosting aggregate demand and inflation expectations.

"In all, we expect inflation to begin accelerating again over the coming months, and we still think that the next move in rates will be up rather than down," the economist predicted.

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