IN­FLA­TION SEEN AT 3.6% IN SEPTEM­BER

In­dia’s re­tail in­fla­tion likely edged up in Septem­ber, driven by higher salaries of govern­ment em­ploy­ees as well as the im­pact of GST, a Reuters poll has found.

Financial Chronicle - - FRONT PAGE - SHALOO SHRIVASTAVA & ANU BARARIA

BAN­GA­LORE: In­dia’s re­tail in­fla­tion likely edged up in Septem­ber, driven by higher salaries of govern­ment em­ploy­ees as well as the im­pact of the goods and ser­vices tax (GST), a Reuters poll found, a devel­op­ment that would make fur­ther mone­tary pol­icy eas­ing un­likely.

Con­sumer in­fla­tion is fore­cast to have risen to 3.60 per cent in Septem­ber from a year ago, above Au­gust’s 3.36 per cent, the poll of 36 economists showed. The data will be re­leased on Thurs­day at 12 noon.

If the Septem­ber num­ber matches the poll con­sen­sus, in­fla­tion would be the high­est in 6 months – yet still be­low RBI’s mid-term tar­get of 4 per cent. A re­cent hike in house rent al­lowances for govern­ment staff, cou­pled with stag­gered price hikes by firms ad­just­ing to the new na­tional tax, con­trib­uted to price rises, said Sonal Varma, chief In­dia econ­o­mist at No­mura.

The new tax, in­tro­duced July 1, caused dis­rup­tions to busi­ness ac­tiv­ity in the man­u­fac­tur­ing and ser­vices sec­tors that were still re­cov­er­ing from the govern­ment’s move late last year to scrap high­value ban­knotes.

An­nual eco­nomic growth dropped to a three-year low of 5.7 per cent in the AprilJune quar­ter, rais­ing calls for fur­ther mone­tary pol­icy eas­ing by RBI. But in a re­cent in­ter­view, RBI gov­er­nor Ur­jit Pa­tel said al­though eco­nomic growth was a con­stant con­sid­er­a­tion for RBI, it would not take prece­dence over its in­fla­tion tar­get.

While leav­ing in­ter­est rates on hold at its Oc­to­ber rate-set­ting meet­ing – the first after a cut in Au­gust – RBI cut growth es­ti­mates and raised in­fla­tion pro­jec­tions for FY17.

A Reuters poll last month showed RBI will hold bor­row­ing costs steady well past 2018 amid weak eco­nomic growth and signs in­fla­tion may soon over­shoot its tar­get. Whole­sale prices are fore­cast to have risen 3.41 per cent in Septem­ber from a year ago ver­sus 3.24 per cent in Au­gust, the lat­est poll found. It also pre­dicted in­dus­trial pro­duc­tion rose 2.4 per cent in Au­gust, up from July’s 1.2 per cent growth.

“These could be taken as early signs that the in­dus­trial sec­tor is grad­u­ally com­ing out of the dis­rup­tive im­pact of de­mon­eti­sa­tion and (the) GST,” wrote Rupa Rege Nit­sure at L&T Fi­nan­cial Ser­vices in a note to clients. “Go­ing ahead, in­dus­trial pro­duc­tion growth prints may not sus­tain at the same level,” Nit­sure said.

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