Inflation To Remain Above 6% Until At Least October: Experts

India's inflation rate will remain above the Reserve Bank of India's upper tolerance band of 6 per cent at least until October, according to a Reuters poll of economists who sharply upgraded their price-rise forecasts for this quarter.

Consumer prices in Asia's third-largest economy rose at the fastest annual rate in the 15 months in July, to 7.44 per cent from 4.87 per cent in June, largely driven by a sharp increase in prices of essential foods commonly used in Indian kitchens.

That sudden spike in inflation was likely to stay elevated for at least a few more months, a Reuters poll of economists showed.

Nearly 75 per cent of respondents to an additional question, 33 of 45, said inflation would fall within the RBI's 2-6 per cent target range in the next quarter or beyond.

"It depends on what's happening to the broader food price category, but certainly not in August. Perhaps September may still bring upside risk, and from October or November, it can start falling below the official target range," said Dhiraj Nim, an economist at ANZ.

"But that is entirely contingent upon how quickly prices of vegetables normalize."

The delay in taming inflation was likely to put pressure on Prime Minister Narendra Modi's government to take action as it gears up for national elections in May 2024.

However, that was easier said than done, especially in a rain deficit year, as monsoons usually deliver nearly 70 per cent of the rainfall the country needs to water crops and refill reservoirs and aquifers.

Following July's sharp rise in inflation, economists upgraded their inflation forecasts to 6.6 per cent for the current quarter, 5.7 per cent for third-quarter FY 2023-24 and 5.3 per cent for the fourth quarter, respectively, from 5.4 per cent, 5.5 per cent and 5.2 per cent.

Median forecasts showed inflation averaging 5.5 per cent and 4.8 per cent this fiscal year and next to remain above the RBI's 4 per cent medium-term target beyond the first half of 2025.

"Given the CPI inflation print for July 2023 and our expectations for Aug-Sept 2023, the Monetary Policy Committee's revised forecast for inflation for Q2 FY2024 of 6.2 per cent appears to be at risk of being overshot," said Aditi Nayar, chief economist at ICRA.

The RBI, which ended a modest rate-hiking cycle this February, was not expected to take rates higher.

The survey showed the RBI would hold the repo rate at 6.50 per cent this fiscal year and then go for a 25 basis point cut in Q1 FY 2024-25.

Economic growth likely accelerated to 7.7 per cent in the April-June quarter, the fastest annual pace in a year, on robust service sector growth, strong demand and increased government capital expenditure.

But growth was expected to moderate in the coming quarters, averaging 6.2 per cent and 6.3 per cent this fiscal year and next, largely unchanged from a previous poll.

"We all know consumption has more or less normalized," added Nim.

He said uncertainty around next year's general election would keep investments "on a wait and watch mode" and all these factors could keep growth "steady if not very strong."