Retail inflation falls to 5year low in June, may prompt RBI to cut rate

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Consumer inflation fell to a record low of 1.54 per cent in June, easing further from May's 2.18 per cent, after a drop in food prices. This is the lowest level of inflation since the series began in 2012 raising hopes the Reserve Bank of India (RBI) may cut rates to boost the stressed industrial sector. The RBI is expected to cut its key policy rate by 25 basis points in its review meet on August 2, Bank of America Merrill Lynch had said earlier in a report. However, some economists say that the RBI could still remain cautious, watching out for the impact of the goods and services tax (GST), which came into force on July 1, though food products were exempt from taxes under the new system. A separate set of data showed industrial growth at 1.7% in May below the downwardly revised 2.7% figure for April. June’s retail inflation is the lowest since the government began issuing data based on the consumer price index (CPI) in 2012. The decline in food inflation at 2.12% was steeper than the 1.85% fall registered in May. Vegetable inflation cooled 16.5% while pulses and products inflation was 21% lower in June.

On industrial production front, mining output fell 0.9% in May from a 5.7% rise in the year ago period. Manufacturing output grew a meagre 1.2%. Electricity production, however, was a bright spot with an 8.7% rise compared with a 6.1% rise in April.

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