Stock Market

August CPI falls to 5.05%; July IIP contracts by 2.4%

Chillicious Bureau

August consumer price index (CPI) fell sharply to 5.05 percent year-on-year from 6.07 percent in July, thanks a sharp fall in food prices, which enjoy about 50 percent weight in the inflation basket, government data released today showed.

A CNBC-TV18 poll of economists forecast CPI would come in at 5.13 percent.

Food inflation slowed to 5.91 percent from 8.35 percent, with high pulses prices being offset by weak vegetable prices.

Seperately, data showed that July index of industrial production (IIP) came in at -2.4 percent, compared to 1.95 percent (revised) in June, and an expectation of 1.37 percent.

The fall in inflation and industrial output may bolster hopes for an interest rate cut by the Reserve Bank of India, which is targetting to bring CPI down to 5 percent by January 2017.

Economists say they expect CPI to go below 5 percent, and even closer to 4 percent by December, thanks to the base effect and falling food prices.

“The CPI number is in line with our estimates,” JPMorgan Economist Sajjid Chinoy told CNBC-TV18. He, however, added that he expects the Reserve Bank to wait a few months before taking rate action.

The weakness in industrial output was driven mainly by weakness in capital goods, which tends to be very volatile, and electricity.

Rupa Rege-Nitsure, Chief Economist at L&T Financial Services, said that the IIP number represents the broader weakness in the manufacturing sector.