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Informist, Friday, Oct. 4, 2024

 

NEW DELHI – Inflation forecasts of Indian companies fell to a three-and-a-half-year low of 4.41% in August, down from 4.87% in June, according to the Indian Institute of Management-Ahmedabad's latest Business Inflation Expectations Survey. The survey, released Tuesday, comes ahead of the three-day meeting of the Reserve Bank of India's Monetary Policy Committee, which starts Monday.

 

The 46-basis-point fall in the one-year-ahead CPI inflation forecast of Indian companies in August compared to June is the largest decline reported by the survey in more than five years. The last time a larger fall was posted was way back in February 2019, when businesses' view on retail inflation one year down the line fell 53 bps to 3.30%.

 

The results of the survey are based on responses from companies mostly from the manufacturing sector. The latest round of the survey, the 88^th one, received replies from around 1,200 companies.

 

In addition to a large fall in companies' inflation forecasts, the IIM survey also found that their one-year-ahead inflation expectations moderated to a nine-month low of 4.05% from 4.21% in July. Policymakers keenly eye inflation expectations for clues on the future path of price increases as anchoring these expectations is crucial in ensuring price stability. RBI Governor Shaktikanta Das noted in the minutes of the Aug. 6-8 meeting of the MPC that monetary policy staying vigilant to risks from any potential spillovers from elevated food prices "is critical for the 'last mile of disinflation' and anchoring of inflation expectations".

 

The IIM-Ahmedabad's Business Inflation Expectations Survey is one of only two surveys done in India to measure inflation expectations, with the other being the RBI's own Inflation Expectations Survey of Households. As per the latest round of the RBI's household survey, released on Aug. 8, one-year-ahead inflation expectations in July were 20 bps higher from May at 10.1%.

 

The fall in businesses' inflation forecasts and expectations will be welcomed by the Monetary Policy Committee, which is widely seen as approaching the start of its easing cycle. Earlier on Friday, S&P Global said prices charged by Indian service providers in September rose at the weakest pace in more than two-and-a-half years. While CPI inflation is expected to rebound sharply to around 5% in September--data for which will be released on Oct. 14--from 3.65% in August, evidence of cooling underlying price trends should bring comfort to India's rate-setters. The RBI has left the repo rate unchanged at 6.50% since February 2023.  End

 

Reported by Siddharth Upasani

Edited by Tanima Banerjee

 

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