India's retail inflation cools to 6.83% in August; industrial output rises 5.7% in July

Food inflation, which accounts for nearly half of the overall consumer price basket, fell to 9.94 percent compared with 11.51 percent in the previous month.

Rural inflation was on the higher side at 7.02 per cent, compared to urban inflation at 6.59 per cent in August.

"The numbers are better than expected, but the inflation rate is still higher than RBI's upper limit. The central bank will remain vigilant given the uneven rainfall. Not just Kharif, Rabi crops can also be impacted," said Rupa Rege Nitsure, Chief Economist at L&T Financial Services.

"Notwithstanding the reversal of the relatively transient spike in tomato prices, the outlook for food inflation remains on edge, on account of other vegetables like onions, as well as kharif crops with a YoY lag in sowing such as pulses. Well distributed rainfall in the rest of September could help to protect kharif yields, even as reservoir levels do not portend well for an early kick off of rabi sowing," said ICRA's Aditi Nayar.

"Core inflation (CPI excluding food and beverages, fuel and light and petrol and diesel) eased marginally to 5.06 percent in August 2023 from 5.12 percent in the previous month; this was the third consecutive month of a dip in inflation of this metric. The inflation in the services segment (with a weight of 23.4 percent in the CPI) remained steady at 4.2 percent in the month," Nayar said.

"There is no relief as such as the dip in the number is because of vegetables," said Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services.

While inflation in Asia's third-largest economy was expected to remain above the central bank's upper limit of the target range at least until October, it was forecast to remain higher than the RBI's 4 percent medium term target well into 2025.

However, the central bank was not expected to hike its key policy rate anytime soon and instead start cutting in Q2 2024.

"The systemic decline in food inflation, which will be visible in the October data, should give them some amount of comfort to not (make) any repo hikes. In my expectation, they will continue with the pause during the October meeting," said Debopam Chaudhuri, chief economist at Piramal Enterprises.

Meanwhile, India's industrial output, as measured by the index of Industrial production or IIP, rose to 5.7 percent in July from 3.7 percent month-on-month, data from the Ministry of Statistics showed today.

"We were expecting higher numbers for industrial output," said Motilal economist Nikhil Gupta.

Nayar said: "The IIP print for July 2023, at 5.7 percent, exceeded our expectations, on account of a better-than-expected performance of the manufacturing sector. The YoY performance of most available high frequency indicators improved in August 2023 relative to July 2023, including freight and electricity generation. Based on these trends as well as a favourable base (-0.7 percent in August 2022), ICRA expects the YoY IIP growth to witness an uptick to 5-7 percent in August 2023."

As per CNBC-TV18's poll, the July IIP data was expected to decline to 5.2 percent.

The mining output for July this year surged to 10.7 percent, up from -3.3 percent in the same period a year ago.

The manufacturing sector output climbed by 4.6 percent in July 2023, as against 3.1 percent in July last year.

Meanwhile, the electricity output for the said month recorded a growth of 8 percent, compared to 2.3 percent in July last year.