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DBS economist Radhika Rao expects India’s June CPI inflation to edge up to 4.1% YoY from 3.9%, driven by food normalisation and fuel-cost pass-through. She sees limited upside risks to core inflation, an improving but uneven southwest monsoon, and the June trade deficit remaining elevated near USD 28.5 billion despite the recent oil-price correction.
Mild CPI rise and trade deficit
“June CPI inflation is expected to rise marginally to 4.1% yoy from 3.9% the month before, on continued normalisation in food segments and passthrough of fuel costs through the related segments.”
“Beyond food and fuel, upside risks to core inflation appear limited, amid softer gold as well as precious metal prices and little scope for further pump price adjustments.”
“Markets are also focused on the spatial and geographical spread of ongoing southwest monsoon.”
“Encouragingly, the nationwide rainfall shortfall has narrowed considerably into July to -15% (as of 8 July), from over 40% gap in end-June, with key crop-producing belts of central and northwest India witnessing improvements.”
“June trade data are unlikely to fully capture the impact of the mid-month correction in oil prices, with the trade deficit expected to remain elevated at around $28.5bn.”
