James HesterReuters – India’s retail inflation picked up in October to a seven-month high, driven by faster rises in prices of food and fuel products, dampening chances of an interest rate cut by the central bank next month.
India’s annual consumer inflation increased to 3.58% from a year earlier, government data showed on Monday.
Analysts polled by Reuters had expected October’s CPI inflation rate would edge up to 3.46% from September’s 3.28%.
Tax cuts
Some analysts expect India’s decision on Friday to slash tax rates on 178 items such as chocolates and detergent powder, to 18% from 28%, could marginally lower retail inflation in the coming months.
“There is, however, a low likelihood of a rate cut by the Reserve Bank of India (RBI) in the immediate term,” said Aditi Nayar, an economist at ICRA, an Indian arm of the rating agency Moody‘s, adding that inflationary expectations could remain high in the second half of the fiscal year that ends in March.
The RBI holds a policy review on December 6.
Retail inflation has been steadily rising since June, when it eased to 1.46% - its slowest pace since India started releasing such figures in January 2012, based on combined data for rural and urban consumers.
Industrial production
Separately, annual industrial output grew at a lower-than-expected 3.8% in September, compared with the forecast of 4.2% by economists in a Reuters poll, data released on Friday showed.
Prices pressures are building just as the RBI projected last month inflation to rise in October-March to 4.2-4.6%, above its medium-target of 4%, while leaving rates unchanged.
Crude prices have rallied, sending Brent to its highest since June 2015, a worry given that India imports most of its energy needs.
Despite a cut in taxes, retail petrol prices have gone up by 7.6% and diesel by 6.6% in New Delhi in the last year.
Prime Minister Narendra Modi, who faces crucial state elections in his home state of Gujarat next month, is under pressure to revive economic growth, which slipped to 5.7% in the April-June quarter, the slowest pace in three years.
New Delhi, facing risks of a widening fiscal deficit this year mainly due to lower growth in revenue receipts, wants the RBI to ease policy rates to support private investment and revive economic growth.
