Retail, wholesale inflation inch up, rate cut hopes fade

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Spurred by the pound's sharp depreciation in the wake of last year's Brexit vote, consumer price inflation hit 2.9% in May, its highest since mid-2013.

According to data from the Ministry of Commerce and Industry, the wholesale price index (WPI), with the revised base year of 2011-12, went up in July 2017 to 1.88 per cent from 0.90 per cent in June.

Figures from the Office for National Statistics (ONS) showed inflation, measured by the consumer prices index (CPI), at 2.6% in July, a weaker than expected reading resulting from lower energy prices and supermarkets absorbing higher food costs.

Vegetable prices, which had witnessed a 21.16 per cent contraction in June, too shot up 21.95 per cent in July.

The decline was countered in part by food prices notching 0.1% higher month on month in July after falling by 0.2% over the period a year ago.

"As expected, CPI inflation rebounded to 2.4% in July 2017 from the series low of 1.5% in June 2017, on account of rising vegetable prices, the revision in HRA (house rent allowance) and, to some extent, higher GST on various services", said Aditi Nayar, principal economist at ratings agency ICRA.

Moreover, core CPI inflation recorded a marginal uptick to 4 per cent in July 2017 from 3.9 per cent in the previous month.

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The Consumer Price Index including owner-occupiers' housing costs also remained at 2.6% in July, in line with the rate for June.

"More recently, such shifts seem to have been missed, for example, in the last 14 quarters, inflation has been overestimated by more than 100 bps (basis points) in six quarters with an average error of 180 bps", it said.

As far as how this monthly survey is compiled, the New York Fed uses a nationally representative internet-based survey of a rotating panel of approximately 1,200 household heads.

ONS figures on Tuesday also showed a modest slowdown in house price inflation, which edged down to 4.9 percent, its lowest since March's three-year low of 3.9 percent.

Median one-year ahead home price change expectations declined from 3.5% in June to 3.2%. June had marked the first time that inflation had fallen back since April 2016 (when it was just 0.3%). "We look forward to a further cut in the policy rate by the RBI at the earliest".

Despite inflation unexpectedly holding steady at 2.6% rather than rising further, cash strapped households are likely to find little relief in the wages figures.

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