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Rediff.com  » Business » High inflation in Nov set to keep pressure on RBI

High inflation in Nov set to keep pressure on RBI

December 11, 2013 11:15 IST
Indian inflation is forecast to remain close to 9-month highs in November, a Reuters poll showed, putting further pressure on the central bank to follow up on its back-to-back interest rate hikes despite slowing economic growth.

The poll of 26 economists predicted India's November wholesale price inflation was at 7 per cent year-on-year, unchanged from October -- which was the highest since February.

Consumer prices were forecast to have risen 10.00 per cent annually last month, barely changed from the 10.09 per cent clocked in October.

"A moderation is expected in primary articles (prices), particularly food. At the same time, there could be some pickup in non-food items," said Sujit Kumar, economist at Union Bank.

Reserve Bank of India Governor Raghuram Rajan said last month high inflation warranted an appropriate policy response after raising the key repo rate for the second time in as many months in October to 7.75 per cent.

If actual data for November reflects median forecasts in the poll it would harden expectations for another interest rate hike at the RBI's meeting next week.

"Will Dr Rajan feel the need to respond to the rise in both WPI and CPI inflation? We expect he will and still look for a (final) 25 basis point hike at the 18 December meeting," wrote Robert Prior-Wandesforde, research analyst at Credit Suisse in a note to clients.

Persistently high food price inflation, stoked by weak supply of staple items, has forced Rajan to tighten monetary policy at a particularly vulnerable time for the economy.

The interest rate hikes come even as the pace of growth has slowed to its lowest in a decade, with some analysts fearing Asia's third-largest economy is potentially entering a stagflationary-type environment, marked by high inflation but weak growth.

Those concerns were underscored by data last month showing the economy notched up a fourth successive quarter of below 5 per cent growth in the three months through September.

That rate is far lower than the 8 per cent growth the government says is needed to reduce poverty and provide more jobs for the country's burgeoning youth population.

October's wholesale food inflation remained close to a three-year high at 18.19 per cent. Rising food prices were also reflected in a faster-than-expected spike in consumer prices that month.

Although a good monsoon harvest and a consequent increase in supply probably brought down the pace of food inflation last month, retail inflation stayed high, economists said.

Last month Rajan acknowledged that food prices were "worryingly high", underlining the delicate balancing act for policy makers as they try to tame inflation at a time of weak growth.

Deepti Govind
Source:
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