August inflation seen at 5-month high on rising food costs

Bengaluru: India`s retail inflation is expected to have picked up to a five-month high in August, largely driven by higher food costs, a Reuters poll showed, easing pressure on the Reserve Bank of India (RBI) to cut interest rates again after poor growth data.

Consumer prices were forecast up at 3.20 percent in August from a year ago, jumping from July`s 2.36 percent, according to the poll taken September 5-8 of nearly 40 economists.

Forecasts for the data, scheduled to be released on September 12 at 1200 GMT, ranged from 2.50 percent to 3.55 percent.

If the consensus is met, it would be the highest since April, but below the RBI`s medium-term target of 4.0 percent for the tenth consecutive month.

Tushar Arora, economist at HDFC Bank, said food prices continue to rise in August, mainly driven up by "unfavorable weather conditions and supply chain constraints."

Food and beverage inflation, which accounts for nearly 50 percent of the consumer price index basket was expected to have rebounded in August after prices fell in the three previous months .

Monsoon rains this year have caused damages to crops of some perishable food items and hindered movement of goods.

The resulting hit from a shortage of production and supply of vegetables such as tomatoes and onions - which are basic ingredients in Indian kitchens - suggests inflation will be elevated in coming months.

"Looking beyond the forthcoming data for August, price pressures are set to rise further," said Shilan Shah, economist at Capital Economics.

Wholesale prices were expected to rise 3.00 percent last month from a year ago, from 1.88 percent in July, the poll forecast.

Early last month the Reserve Bank of India cut interest rates - making it the first Asian central bank to ease this year - on a subdued economic outlook.

But rising price pressures will complicate the RBI`s policy path as the latest data for April-June quarter showed economic growth cooled to a three-year low.

"We do not see significant room for monetary policy accommodation given the fact that rates are near their all-time low and inflation is now on a rising trajectory," said Teresa John, an economist at stock brokerage Nirmal Bang.

Separately, the poll also predicted industrial output rose 1.2 percent in July after contracting in June, despite disruptions caused by a new goods and services tax.

That revival was likely led by increased output in the eight core industries - which makes up about 40 percent of overall industrial production.