India’s inflation has declined to a 60-month low of 3.50 per cent in August, as compared to 3.54 per cent in the previous month, according to a Moneycontrol (MC) poll of 10 economists.

The forecasts in the poll ranged from a low of 3.2-4 per cent. The economists expect a favourable base and low inflation in perishables to keep consumer prices in check.

Last August, inflation had risen to 6.8 per cent.

“High frequency data for perishables point to a moderation in momentum in August, which together with remnant base effects are likely to keep headline inflation in the lower half of the target band,” said Radhika Rao, senior economist, DBS Bank.

Vegetable prices to remain high

However, the economists expect vegetable inflation to spike to double digits.

“Vegetable inflation is projected to remain high, bouncing back to double digits, and the deflation in edible oil is expected to reduce further,” said Rajani Sinha, chief economist, CareEdge.

Sinha also noted a marginal rise in core inflation and the projected inflation figure to be higher at 3.7 per cent in August.

Purchasing Managers' Index (PMI) data, which was released earlier this week, pointed to easing price pressures for services, but higher output prices for manufacturing.

Cost pressures in manufacturing output led to one of the strongest rises in close to 11 years, as per the PMI release on September 2.

Positive news on industrial output
On the industrial front, there was positive news as the MC Poll expects industrial production to inch up to 4.8 per cent in July, as compared to 4.2 per cent in the previous month.

Manufacturing indicated a strong growth in the first quarter of the fiscal, with the gross domestic product (GDP) data indicating a 7 per cent rise. The corresponding figure during a similar period in the previous year was at 5 per cent.

Core sector, which has a 40 per cent weight in the index of industrial production, rebounded to 6.1 per cent in July, as compared to 5.1 per cent growth in June.

“Ind-Ra (India Ratings and Research) believes moderate growth in the core sector may keep growth in IIP (index of industrial production) around 5 per cent in July,” said Paras Jasrai, senior analyst, Ind-Ra.

The Reserve Bank of India (RBI) is likely to be on a wait-and-watch mode.  The central bank has estimated inflation to hover around 4.4 per cent for the second quarter amid a healthy trend for industrial production.

The RBI’s monetary policy committee’s (MPC) bi-monthly meeting will be held in October. Experts believe that the MPC is likely to go for an interest rate cut of 25 basis points (bps) in its next meeting in December.

Last month, the RBI kept the policy rate at 6.5 per cent for the ninth consecutive time.