India’s retail inflation eases to a four-month low in August

India’s retail inflation eased to a four-month low in August on softer food prices as supply side constraints eased following the lifting of pandemic-related restrictions, which may allow the central bank to focus further on economic recovery.

Consumer prices rose 5.30% in August from the same month last year, lower than July’s 5.59% annual inflation rate and below a Reuters poll forecast of 5.60%, data released by the Ministry of Statistics showed on Thursday.

In April, retail inflation stood at 4.29%.

Food prices, which account for nearly half of the inflation basket, rose 3.11% year-on-year in August from 3.96% a month before.

“The headline inflation came in softer than our expectations, largely led by downward surprise of food prices. We expect the subsequent readings to remain fairly benign and much lower than RBIs estimates,” said Upasna Bhardwaj, economist at Kotak Mahindra Bank.

With the latest numbers, inflation has stayed within the Reserve Bank of India’s (RBI) 2-6% comfort range for a second month in a row. But it has been above the medium-term target of 4% for nearly two years.

Last week, RBI Governor Shaktikanta Das said the central bank expected inflation to moderate and has focused on growth during the pandemic, content to operate within the 2%-6% band instead of a 4% retail inflation target.

He said the central bank would return to targeting 4% inflation, but the timing of that was not yet decided..

In August, prices of vegetables fell 11.68% from a year ago, while cereals fell 1.42%. However, retail fuel and electricity prices rose 12.95% in August and transport costs rose 10.24% from a year ago, the data showed.

Core inflation, excluding volatile food and fuel costs, was estimated between 5.77% and 5.8%, according to two economists, compared with 5.94% and 6.1% in July.

“Core inflation has also softened from last month. We expect the MPC to remain focused on growth as inflationary concerns remain under check,” said Suvodeep Rakshit, economist at Kotak Institutional Equities, referring to the RBI’s Monetary Policy Committee.

Indian shares closed lower on Monday, as losses in heavyweight Reliance Industries over a delay in launching its low-cost smartphone, outweighed sharp gains in Coal India.

The blue-chip NSE Nifty 50 index closed 0.08% lower at 17,355.30, and the benchmark S&P BSE Sensex fell 0.22% to 58,177.76.

Reliance dragged the index lower, ending down 2.23% after it delayed the launch of an “ultra-affordable” smartphone, being developed by the company’s telecom arm and Google, to November.

Private sector lenders ICICI Bank and HDFC Bank ended down 1.8% and 0.8% respectively, and were among the top five losers on the Nifty.

However, losses were cushioned by sharp gains in the world’s largest coal miner, Coal India, that ended up 4% after local media reported it might raise prices to mitigate the impact of rising costs and a wage revision.

IT stocks also lent support, with shares of Tata Consultancy Services closing 1.4% higher, among the top gainers on both the indexes, following the company’s partnership with Dutch tech company NXP Semiconductors NV.

Among other stocks, beleaguered airline Jet Airways jumped 5% on news it would resume domestic operations by the first quarter of 2022. Telecom operator Bharti Airtel, which scaled a record high during the session, ended up 1.04%.

Nifty’s metal index advanced for a third session, rising 1.29%.

World stocks: World stocks started the week on the back foot on Monday, slipping to 2-1/2 week lows on further signs of accelerating inflation as well as tax and regulatory pressures on the world’s biggest companies.

Equity markets are down so far in September after a seven-month winning streak. They have been pressured by inflation which may prove less transitory than flagged by central bankers, and signs that governments are keen to get more tax from companies and to make them toe a stricter regulatory line.

After Wall Street’s worst run since February, futures hint at a firm opening and European shares also rose . However, MSCI’s world stocks benchmark slipped 0.1% and an index of Asia-Pacific shares outside Japan lost 0.8%.

A more upbeat tone in European markets was offset by angst from China, which fired a fresh regulatory shot at its tech giants -- telling them to end a long-standing practice of blocking each other’s links on their sites or face consequences.

The Financial Times reported that Beijing is aiming to break up Alipay, the payments app owned by Jack Ma’s Ant Group .

That helped push the Chinese blue-chip index 0.5% lower. It follows a Friday court ruling on Apple that hit the iPhone maker’s shares, while more reports emerged at the weekend that US Democrats are mulling proposals to increase taxes on corporations and the wealthy.

Adding to concerns is the continued acceleration in inflation, with Japan reporting wholesale prices at 13-year highs last month. That comes on top of data showing factory gate inflation at more than decade-highs in the United States and China, pressuring firms to pass on price rises to consumers.

Indeed, a market gauge of euro zone inflation expectations rose to its highest since mid-2015 on Monday as supply bottlenecks and stronger than expected inflation prints encourage investors to seek inflation protection.

Inflation in the bloc will “in all likelihood” ease as soon as next year but the European Central Bank is ready to act if it doesn’t, ECB policymaker Isabel Schnabel said.

US consumer prices, due on Tuesday, are a key focus for markets with the core measure seen easing a touch, albeit to a still-high 4.2%.