India: Consumer price inflation remains unchanged in April, hinting the RBI could cut rates in June
In April, consumer prices rose 0.50% compared to the previous month and was up from 0.36% in March, primarily due to more expensive food and beverages, and housing.
Consumer price inflation was unchanged at 2.9% in April, which was slightly below market analysts’ expectations of 3.0%. Inflation, therefore, remained just beneath the midpoint of the Reserve Bank of India’s target range of 2.0% to 6.0%. Core inflation, which excludes food and energy products, eased to 4.5% from 5.1%, representing the first time that core inflation has read below 5.0% in over a year.
Wholesale prices increased 0.8% month-on-month in April, up from 0.4% in March. Higher prices in April came on the back of more expensive primary articles, particularly vegetables. Wholesale price inflation decelerated to 3.1% in April from 3.2% in March, while annual average wholesale price inflation ticked down to 4.2% from 4.3%.
In terms of what this all means for monetary policy, and with the Reserve Bank of India’s next meeting scheduled for 4–5 June, analysts at Nomura said: “We are changing our call back to penciling in a 25bp rate cut in June […] The main reason for this change is that while inflation remains within target, growth risks have risen materially. Global slowdown continues and the ongoing trade frictions are set to hurt both exports and investment demand further. Already, India’s April auto data suggest a sharp slump in consumption demand, i.e., there is no sign yet that growth is bottoming. Underlying growth momentum is perhaps running below-6% in H1 2019, in our view. This is also confirmed by the weak core inflation readings.”
On why the Reserve Bank of India might not cut rates in June, analysts at Nomura said: “The main arguments to wait until August include clarity around monsoons and the [release of a new government budget in early July]. But neither of these would change the inflation outlook, in our view. If so, then weak growth should argue in favor of frontloading the existing space on the policy front given the already large lags inherent in monetary policy transmission.”