Higher food prices lift retail inflation to 14-month high

WHOLESALE PRICE INFLATION EASED TO 0.33% IN SEPTEMBER FROM 1.08% IN THE PREVIOUS MONTH

NEWDELHI: India’s retail inflation rose close to the central bank’s medium-term target of 4% in September for the first time in 14 months, but analysts still predict a sharp economic slowdown will prompt a sixth consecutive interest rate cut in December.

Annual retail inflation rose to 3.99% last month, driven by higher food prices, up sharply compared with 3.21% in the previous month and higher than the 3.70% forecast in a Reuters poll of analysts.

Retail food prices, which make up nearly half of India’s inflation basket, increased 5.11% in September from a year earlier, compared with 2.99% in August.

Subdued inflation and an economic slowdown have allowed the Reserve Bank of India (RBI) to cut interest rates by a total of 1 3 5 basi s poi nt s t hi s year, including a 25-basis-point cut earlier this month, making it the most aggressive central bank in Asia.

The RBI said it expected inflation to stay below its mediumterm target through to the early months of the 2020-21 fiscal year, while lowering its economic growth forecast to 6.1% for the current year ending March 2020, from an earlier estimate of 6.9%.

Economists said economic growth could fall as low as 5.8%, dragged down by a slump in consumer demand and investment, encouraging the RBI to cut rates for the sixth consecutive time at its next meeting in December.

Garima Kapoor, economist and vice-president at Elara Capital, said the arrival of the new crop in the market could ease food prices and so calm inflation, providing the RBI with the headroom to cut rates further.

“We expect the MPC (Monetary Policy Committee) to cut the policy repo rate by another 50 basis points until March-2020 with a 25 basis points cut in December,” she said, referring to the central bank’s benchmark interest rate.

Separately, figures released on Friday showed industrial output shrank 1.1% in August, the worst performance in nearly seven years.

Annual wholesale pricebased inflation eased to 0.33% in September, from 1.08% in the previous month, while economists in a separate Reuters poll said the central bank was not yet done with rate cuts.

Wholesale food prices in September rose 5.98% year-on-year, compared with a 5.75% increase a month earlier, while fuel prices saw a sharper fall of 7.05%, compared with a decline of 4% in August.

The rate of price rise for the food articles was at 7.47% in September, while that for non-food articles stood at 2.18%, showed the data released by the Ministry of Commerce and Industry.

India’s unemployment rate was 7.16% in September, compared with 6.47% a year ago and 8.2% in the previous month, estimates from the Centre for Monitoring Indian Economy, a Mumbai-based think-tank, showed.

The next decision from the RBI’S monetary policy committee (MPC) is due on December 5.

India’s passenger vehicle sales slumped 23.7% in September, the 11th straight month of declines, prompting an industry body to flag more job cuts if sales failed to pick up soon.

“All high frequency indicators of demand indicate soft demand conditions,” Kapoor said.

Sameer Narang, an economist with Bank of Baroda, said any print that is closer to 4% makes it very difficult for the Reserve Bank of India to ease further because of the “conflicting signal that though the production is contracting, inflation isn’t coming down.” The RBI will be able to look at another price print before the December policy, he said.