India’s consumer price inflation rate has continued to rise for nine consecutive months, from 4.38% in June to 4.45% in July, raising expectations that the country’s central bank will raise interest rates by the end of the year.
However, headline inflation was slightly below the 4.50% rise expected by economists, according to a Reuters poll.
India’s food inflation rose by 5.5% in July, while personal transport and goods transport inflation each exceeded 7%, India’s Ministry of Statistics and Planning Implementation said in a statement on Monday.
Earlier this month, India’s central bank kept its benchmark interest rate unchanged, in contrast to many of its Asian peers, which have raised interest rates to combat inflationary headwinds from disruptions to global energy supply chains caused by the Iran war.
India is the world’s fastest growing major economy and one of the countries most vulnerable to supply disruptions caused by war. The South Asian country imports almost 85% of its fuel needs and relies on an energy supply chain that passes through the Strait of Hormuz.
Global oil prices rose to around $90 a barrel on Wednesday as deadly attacks on ships in the Red Sea and Gulf of Oman raised concerns about risks to global shipping lanes.
Reserve Bank of India Governor Sanjay Malhotra said headline inflation was above the 4% target, but added that core inflation was “moderate”.
However, he added that while India’s growth has been resilient so far, the outlook is “uncertain” due to uncertainties posed by the southwest monsoon, El Niño, geopolitics and global trade policy. RBI expects headline inflation to peak in the quarter ending December and core inflation to follow a similar trend.
As a result, the central bank is expected to start raising interest rates towards the end of the year.
Morgan Stanley said in a note last Wednesday that it expects the central bank to begin raising interest rates in December, “achieving a cumulative 75 basis points (bps) of rate hikes, bringing the policy rate to its final level of 6.0%.”
The global brokerage expects India’s headline inflation to average 5% in the fiscal year ending March 2027 due to “firming food inflation” and rising input prices.
