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Monsoon may disrupt inflation calculations

Mumbai, July 26th, 2023

Key economic forecast:

Real Economy: Dun & Bradstreet expects the Index of Industrial Production (IIP) to remain robust, supported by the improvement in overall consumer demand. Strong growth in infrastructure and construction goods since November 2022 reflects healthy investment activity in the economy and will continue to support industrial production even as exports remain weak. Nonetheless, the monsoon remains a major risk to industrial output. Dun & Bradstreet expects the Index of Industrial Production (IIP) to have grown by 8.0% - 8.50% during June 2023 partly due to the low base of the previous year.

Price Scenario: Dun & Bradstreet expects retail inflation to remain elevated given the food supply chain, especially cereals and vegetables, has been disrupted by an intense heatwave followed by heavy rainfall. The progression of the monsoon and the trend of Kharif sowing will play a crucial role in determining inflation in the coming months. The recent increase in food prices is expected to amplify inflationary pressures and may delay a policy rate cut in the short term. On the other hand, wholesale inflation is likely to remain negative due to the high base of the previous year and the decline in global commodity prices. Dun & Bradstreet expects the Consumer Price Inflation (CPI) to be in the range of 4.3% - 4.5% and Wholesale Price Inflation (WPI) to be around (-) 3.3% - (-) 3.2% in July 2023.

Money & Finance: The impact of uneven rainfall and weather-related uncertainties followed by festival related demand from September 2023 is likely to keep inflation elevated, thereby pushing the possibility of a policy rate cut to early next year. This would keep bond yields elevated. Furthermore, the expected rate hike by the US FED and the consequent rise in US treasury yields will also prevent the yields from moderating. Dun & Bradstreet expects the 15-91-day Treasury Bills yield to remain at around 6.7%-6.72% and 10-year G-Sec yield to be 7.08%-7.10% for July 2023.

External Sector: While the net Foreign Institutional Investors (FII) inflows and the narrowing of the trade deficit will continue to support the rupee, it is expected to remain range bound given the interventions by the Reserve Bank of India. Dun & Bradstreet expects the rupee to remain at around 82.1 - 82.2 per US$ during July 2023.

Dr Arun Singh, Global Chief Economist, Dun & Bradstreet said, “Irregular rainfall has disrupted the supply chain of cereals and vegetables and the consequent increase in prices is expected to further amplify inflationary pressures, thereby delaying the possibility of a rate cut in 2023. Lending rates are likely to remain elevated this year. Despite the rising lending rates, the overall bank credit is growing in double digits. This should not undermine the uneven pace of credit growth across different sectors which points to the underlying challenges faced by some of them. On the other hand, growth in personal loans, vehicle loans and credit card debt shows the healthy consumer demand in the economy. Nonetheless, given the steep increase in the lending rates for personal loans, unsecured credit could see an increase in bad asset”.

Dun & Bradstreet’s Economy Observer Forecast



Latest Period

Previous period

IIP Growth

8.0% - 8.5% June-23

5.2% May-23

4.5% April-23

Inflation WPI

(-) 3.3% - (-) 3.2% July-23

-4.12% June-23

-3.48% May-23

CPI (Combined)

4.3% - 4.5% July-23

4.81% June-23

4.31% May-23

Exchange Rate (INR/US$)

82.1 - 82.2 July-23

82.23 June-23

82.34 May-23

15-91 day's T-Bills

6.70% - 6.72% July-23

6.73% June-23

6.62% May-23

10 year G-Sec yield

7.08% - 7.1% July-23

7.05% June-23

7.01% May-23

Bank Credit

17.5% - 18.00% July-23

16.24% June-23

-15.52% May-23



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