India July inflation accelerates to 4.45%, unlikely to alter RBI rate outlook

NEW DELHI: India's inflation rate surged to 4.45% in July due to higher food prices, a rate unlikely to prompt the central bank to alter its stance on interest rates, according to the latest figures released. This figure closely matched a Reuters poll of economists, who had predicted inflation at 4.50%, signaling the second straight month where inflation surpassed the Reserve Bank of India's 4% medium-term objective.

The central bank maintained its benchmark repo rate at 5.25% last week, as policymakers awaited further evidence regarding whether inflationary pressures had become widespread across Asia's third-largest economy. Food inflation rose to 5.52% in July, up from 5.32% in June, due to poor monsoon rains, but experts anticipate it will ease with a slight recovery in the rains in August, reducing further price pressures from the effects of El Nino.

Fitch Ratings affirmed India's credit rating based on strong growth but cautioned about the potential impact of youth unemployment on the fiscal profile. RBI Governor Sanjay Malhotra explained that headline inflation exceeded the target mainly because of fuel price hikes, while overall price pressures remained contained at the central bank's most recent monetary policy meeting.

The bank also revised its inflation forecast for 2026/27 down by 10 basis points to 5%. India's state-run fuel retailers increased petrol and diesel prices four times in May due to surging costs caused by the U.S.-Iran conflict. Although the global crude price drop following the conflict's brief pause alleviated some pressure, prices were still about 20% above pre-war levels.

Economists believe that despite volatile crude oil prices during the month, the lack of any substantial increase in domestic retail fuel prices will keep consumer costs in check. However, transport inflation rose to 4.43% in July from 4.31% in June.