FX.co ★ India Consumer Price Inflation Falls; Industrial Output Logs Slower Growth

Inflation in India eased significantly in July, reaching a near five-year low, primarily due to a sharp deceleration in food price growth. This provides the central bank with potential room for monetary policy easing.

According to the National Statistical Office, consumer price inflation fell to 3.54 percent in July from 5.08 percent in June. For comparison, the inflation rate stood at 7.44 percent during the same period last year.

The anticipated decline in inflation was to 3.65 percent, indicating that the actual rate exceeded expectations. This is the lowest rate since 2019 and falls within the lower end of the central bank's target range of 2-6 percent.

Notably, food inflation dropped significantly to 5.42 percent in July from 9.36 percent in June.

On a month-to-month basis, consumer prices rose by 1.4 percent.

Despite concerns over inflation, particularly food prices, the Reserve Bank of India held its interest rates steady for the ninth consecutive session last week. The key repo rate remains at 6.50 percent, a level maintained since February 2023.

The RBI has maintained its inflation forecast for 2024-25 at 4.5 percent, with risks perceived to be evenly balanced.

Separate data from the statistical office indicated slower-than-expected industrial production growth in June. Industrial output increased by 4.2 percent annually, falling short of the predicted slowdown to 5.5 percent from a revised growth of 6.2 percent in May.

Manufacturing output saw modest growth of 2.6 percent, down from 5.0 percent in May. In contrast, mining experienced robust growth of 10.3 percent, and electricity output increased by 8.6 percent.

For the June quarter, industrial production recorded a year-on-year increase of 5.2 percent.