India's August CPI at 7.08% may raise inflation concerns, IIP at 5.2% may add economic uncertainty

The August Consumer Price Index (CPI) data is expected to be released today, September 12, 2023.  A CNBC-TV18 poll has estimated the August CPI to come in at 7.08 percent, slightly lower than the previous month's reading of 7.44 percent. However, it still remains amove the RBI's 6 percent taget. This persistent inflationary trend is a cause for concern, especially when compared to the same month last year when it was at 7 percent.

The core inflation rate for August is seen at 4.8 percent, down from 5.9 percent a year ago and marginally lower than July's 4.9 percent. This decrease, if it comes, will be a positive sign as it suggests a genuine decline in inflationary pressures in non-volatile sectors of the economy.

A significant contributor to India's elevated CPI is food inflation, which is expected to remain in double digits at 10 percent. While this is a slight improvement from the 11.5 percent recorded in July, it is still a cause for concern. The RBI has a keen interest in reining in food inflation as it poses a challenge to achieving the 6 percent target set by the Monetary Policy Committee (MPC).

The MPC is expected to maintain its current policy stance, holding rates steady, until inflation shows signs of sustainably moving towards the 4 percent mark. However, if inflation continues to hover above 7 percent, the RBI may be compelled to implement further tightening measures to curb rising prices. Therefore, the hope is that future CPI readings will trend below the psychologically significant 7 percent mark, giving the RBI more room to maneuver.

In addition to the CPI data, the Index of Industrial Production (IIP) for July has also been closely watched. According to CNBC-TV18’s poll, the IIP is expected to come in at 5.2 percent. This number is considered volatile and has implications for India's economic growth prospects.

Should the IIP fall below this projected figure, it would be a cause for concern, signaling potential challenges to economic growth.