India’s consumer inflation likely to have dipped below 4 percent for the first time in nearly five years in July, as a favourable base provided support in keeping inflation low, according to a Moneycontrol poll of 16 economists.

The median forecasts projected consumer inflation dipping to 59-month low of 3.6 percent in July, compared with 5.1 percent in the previous month and 7.4 percent in July 2023.

“We anticipate CPI inflation to reach 3.85 percent in July 2024. This moderation from last month's 5.1 percent is due to a high base effect. However, core inflation is expected to rise due to increased telecom tariffs and persistently high gold prices,” said Sujan Hajra, chief economist at Anand Rathi Securities.

The forecasts in the poll ranged from 3.24 percent to 4 percent.

Inflation had risen to 5.1 percent in June after a hiatus of three months, as food prices had galloped 9.4 percent a month back.

“The underlying sequential momentum remains strong, with double-digit growth in vegetable prices and recent hikes in telecom rates. Key essential vegetables have witnessed double-digit growth in prices sequentially over the last month such as potatoes (16 percent), onion (21 percent), and tomato (54 percent),” said Rajani Sinha, chief economist at CareEdge.

Reserve Bank of India Governor Shaktikanta Das on August 8 expressed concerns over elevated household inflation expectations, highlighting that fall in core inflation does not merit a change in monetary stance.

The Reserve Bank of India in its policy meeting concluded on August 8 kept the policy rate on hold for the ninth consecutive time. While the central bank did not change the overall inflation outlook for FY25 from 4.5 percent, it did project a higher inflation of 4.4 percent from 3.8 percent for the second quarter of FY25.

“The monetary policy has pushed up the Q2 CPI expected number to 4.4 percent, possibly on the back of telecom price increase and increase in milk prices. However, negating some of this impact will be the vegetable prices, that have dropped by around 15 percent in the month till date in August. We think there could be some downside risks to the RBI’s new estimate of 4.4 percent,” said Indranil Pan, chief economist at Yes Bank.

Experts have been pencilling in a rate cut of 25 bps or 0.25 percentage point at the next meeting in October, with some even projecting a December cut.

Industrial production to weaken in June

While the economists were hopeful of inflation falling in July, they also projected an easing of industrial output to a five-month low of 4.8 percent in June.

However, the forecasts varied from a low of 4 percent to a high of 6.8 percent.

Core industries growth, which accounts for 40 percent weight in the index of industrial production index, had eased to a 20-month low of 4 percent in June compared with 6,4 percent in the previous month.