Inflation likely cooled in August on weaker food prices

Lower food prices likely cooled India's inflation rate in August, a Reuters poll showed, but probably not by enough to give the central bank scope to ease monetary policy again anytime soon. Official data on the consumer price index is due to be released on Monday.

The median forecast from the Reuters poll of 27 economists pegs it at 5.50% for August, down from 6.07% in July.

The lower number is still above the Reserve Bank of India's March 2017 inflation target of 5% and, if realised, would be the fifth straight month that annual price rises stayed above that mark.

"Owing to the unseasonal decline in prices of vegetables and pulses, the month-on-month momentum in food inflation is likely to have cooled off," said Jay Shankar, chief India economist at Religare Capital Markets in Mumbai, who had the same call as the wider poll median on inflation.

"(But) despite expectations of a sharp drop in CPI inflation, we maintain that there is very limited headroom for further rate cuts at the current juncture."

The Reserve Bank of India has chopped 150 basis points off its benchmark interest rate since January 2015. A Reuters poll last month suggested another cut was likely in the final three months of this year. 

In contrast to the slowdown in consumer inflation, economists in the poll predicted wholesale price inflation to have picked up to 4.01% in August from 3.55% in July.

The poll also showed that annual growth in industrial output was expected to decelerate to 1.7% in July from June's eight-month high of 2.1%, due to a slower pace of expansion for electricity generation and mining.

Infrastructure output, which accounts for nearly a third of total industrial production, grew at a slower annual pace of 3.2% in July.

A slowdown in industrial activity does not bode well for Asia's third largest economy, especially after overall growth faltered to a 15-month low between April and June.