India's annual retail inflation in August is expected to fall below 7 per cent after unexpectedly rising to a 15-month-high of 7.44 per cent in July, an economist at Motilal Oswal said on Thursday.

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Retail inflation rose as of last count as prices of vegetables and cereals skyrocketed, beating all market expectations and putting pressure on the government to bring down prices.

"I think we must look at the drivers of higher inflation in India and not unnecessarily be worried about vegetable-led headline data," Nikhil Gupta, economist, institutional equities research at Motilal Oswal, said in an interview on the Reuters Trading India forum.

Gupta was the only economist who forecast July's retail inflation above 7 per cent in the Aug. 3-8 Reuters poll of 53 economists, coming closest to the actual number released on Monday. Average expectations were for a rise of 6.40 per cent.

India's central bank has a 2 per cent - 6 per cent tolerance band for retail inflation.

Gupta said he expects vegetable prices to keep inflation elevated in August though the headline number would be below 7 per cent, before slipping under 6 per cent in September. He did not expect core consumer price-based inflation to rise further.

"We expect (core inflation) to keep softening very gradually and remain 4.5 per cent - 5.0 per cent for most of the months in fiscal year 2024," he said.

Gupta also expects the Reserve Bank of India (RBI) to cut rates in its February 2024 policy meeting on the back of a slowdown in US growth this year.

A Reuters poll of 75 economists in July showed they expected the RBI to hold its key interest rate at 6.50 per cent through the end of March 2024.

"We don't see any further rate hikes in India. Based on our assessment of the US economy, we still see a possible rate cut in February 2024. It will continue in fiscal year 2025 as well," he added.