Indian inflation slows in July

India's wholesale price index slowed again in July, rising 6.87 percent, which was lower than had been expected. That figure is down from 7.25 percent in June and 7.55 percent in May. The slowing inflation was largely due to fuel prices, although the rises in food prices also slowed slightly.

While inflation is still higher than the government would like, the figures make an interest rate cut more likely in September, when the next Reserve Bank of India decision is due.

"The September rate decision will likely be a judgement call by the Central Bank on whether they want to show confidence in the new finance minister and support growth, or stick to the tougher line," said Dariusz Kowalczyk at Credit Agricole CIB in Hong Kong.

"Weak industrial output and very poor exports suggest that there is rate cut scope, but we need to see how the monsoon develops and what the outlook will be for food prices by then." Until now, persistently high inflation has stopped the Central Bank lowering its main interest rate.

The Reserve Bank of India cited inflation risks for its decision to keep the interest rate at 8 percent last month, despite a slowdown in India's economic growth. The country expanded at its lowest rate in nine years in the quarter to March. Food prices rose just over 10 percent in the year to July, down from the 10.8 percent in the year to June.

Fuel inflation slowed to 6 percent in July from 10.3 percent in June. The key factor determining food prices remains the amount of rainfall. If the monsoon season, which runs from June to September, is insufficient, India will be forced to import more, pushing the price of food higher again.

-BBC