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Home > Around the Globe > Economy > Easing inflation only a brief reprieve for Modi
Around the Globe, Economy
Easing inflation only a brief reprieve for Modi
By  
  , Published : Feb 13, 2018, 6:56 pm IST | Updated : Feb 13, 2018, 6:56 pm IST

Inflation is expected to pick up once the government begins spending for the year starting April 1

India’s retail inflation eased from the fastest pace in 17 months, offering some respite to policymakers and bond investors battling the fallout of prime minister Narendra Modi’s expansionary budget.

Consumer prices rose 5.07 per cent in January from a year earlier, the statistics ministry said in a statement in New Delhi on Monday, in line with the 5.1 per cent Bloomberg consensus.

The inflation was at 5.21 per cent in December and 3.17 per cent in January last year. The data showed the rate of price rise for consumer foods eased to 4.7 per cent in January, from 4.96 per cent in December. Inflation in the vegetable basket slowed to 26.97 per cent as against 29.13 in December. Prices of fruits too rose at a lower pace of 6.24 per cent last month, as against 6.63 per cent recorded in the preceding month.

For the fuel and light segment, inflation was 7.73 per cent last month compared with 7.90 per cent in December.

Price data are collected from selected towns by the field operations division of NSSO and from selected villages by the department of posts.

However, the central bank forecasts the pace could pick up to as fast as 5.6 per cent by September once the government begins spending for the year starting April 1.

“The consumer price index (CPI) will move upwards” on implementation of the budget proposals, said NR Bhanumurthy, Delhi-based economist at the National Institute of Public Finance. “Forget about interest rate cuts, get ready for rate hikes instead,” Bhanumurthy said.

Investors still braving Asia’s worst bond market will now turn to the minutes of the Reserve Bank of India’s latest meeting – due February 21 – to gauge the direction of interest rates in the coming months. The RBI last week reiterated its commitment to contain inflation at about 4 per cent over the medium term and more members of the six-strong monetary policy committee turned hawkish: one voted for a rate hike and another gave up his call for cuts.

While most voted to keep the benchmark repurchase rate unchanged, the prospect of higher borrowing costs could make it tougher for Modi’s government to revive growth in time for national elections next year.  The administration this month said it would widen its budget deficit targets to increase spending in the current financial year through March 31 and the next 12 months.

Morgan Stanley predicts the RBI will tighten between October and December – or even before. Analysts led by Derrick Kam are watching oil costs, the impact of minimum guaranteed prices for crops and trends in government expenditure and rural wages.

“We do think that moderate risks are emerging on account of the wider-than-targeted fiscal deficits,” they wrote in a note before the inflation data. “The risks are also tilting towards an earlier-than-expected rate hike,” the analysts said.

end-of
Location: 
India, Delhi, New Delhi
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