CRISIL's Dharmakirti Joshi foresees inflation easing this month

India may see its inflation rate coming down to a targeted 6 percent, mainly due to an imminent correction in the vegetable inflation. Economists are of the view that the vegetable prices are likely to be stabilised this month. Credit rating agency CRISIL's Chief Economist, Dharmakirti Joshi, anticipates a correction in inflation during the month of September.

Joshi points to the role of vegetable inflation in this correction. As per his assessment, by September, vegetable prices are likely to stabilise, contributing to a decline in overall inflation.

“July and August, are the two months, which typically see substantially higher inflation, than the tolerance band. In September, you will see inflation coming  down, because by that time the vegetable inflation would have corrected.”

While precise figures are yet to be determined, Joshi's estimate for September's inflation rate is around 6 percent, indicating a significant drop from the expected August numbers. However, he mentions that this figure is a broad estimate, and detailed number crunching is yet to be conducted.

August inflation print, due later today, is expected to come in at 7.08 percent according to a CNBC-TV18 poll. This would be significantly above the RBI's 6 percent cap, but below the July reading of 7.44 percent.

For August inflation Joshi said, “We are slightly above the market expectation of close to 7-7.08 percent, it is largely because we have a slightly higher expectation on food inflation. So we have an expectation of 7.6 percent, because on the basis of food inflation trends, that's what we are getting. But the critical issue is that there are two halves of August, the first half, which is higher, and the second half, which is lower, and I think this will correct in September. I think it's going to come down sharply in September.”

Joshi also touched upon India's Industrial Production (IIP) forecast. CRISIL's forecast for IIP stands at 4.4 percent. Joshi notes that the Purchasing Managers' Index (PMI) for manufacturing is showing resilience and strength, suggesting faster growth compared to the first quarter of the year.

However, according to Indranil Sen Gupta of CLSA, “El Niño has pulled the seasonal rainfall deficit down to 89 percent of average drought level. This cannot but hurt the autumn kharif crop and push back rural recovery. Troubles will mount if the summer 2024 rabi crop is also impacted. A trigger will likely be the northern rivers that water the wheat belt, slipping to, say, 90 percent of average from 98 percent now. We see August inflation at 7 percent (consensus 7.1 percent) on September 12 from July’s 7.4 percent.”