Wholesale Inflation to Accelerate Again – Poll - India Real Time - WSJ
India’s inflation troubles deepened in October as food prices rose despite plentiful rainfall this year, a poll shows.
The wholesale price index, India’s most widely-watched measure of inflation, likely rose for the fifth straight month to 6.94% in October compared to a year earlier, according to the median estimate in a poll of 18 economists surveyed by The Wall Street Journal.
The rise compares with a 6.46% increase in September and would make it the biggest annual increase since February.
The government will announce the WPI data on Thursday.
Inflationary pressures were evident in consumer price data announced Tuesday. That showed inflation at the retail level hit a double-digit rate of 10.09% in October, the highest since March.
The main driver there was also high food prices, which jumped 12.6% from the levels last October.
In a research note issued after Tuesday’s data, economists at U.S.-based bank Morgan Stanley, Chetan Ahya and Upasana Chachra, said they had expected spiraling food prices to lose steam because of the normalization of the cost of vegetables, predictions of better farm output and smaller increases in prices paid by the government to farmers for their produce.
“However, given the continued increase in vegetable prices, and still-high inflation in cereals, we see upside risks emerging to food inflation outlook,” they added.
India received above average rainfall this year, brightening prospects that an uptick in farm output would help push down food prices. But the rain didn’t fall evenly.
This led to crop damage in some regions, causing supply shocks and a several-fold increase in the price of vegetables including onions which retailed at 100 rupees ($1.57) a kilogram in some parts of New Delhi in recent months.
These factors have proved a bugbear for authorities, driving up inflation and offsetting reductions in prices of other commodities such as non-food manufactured products, another closely watched indicator used to assess underlying inflationary trends by excluding food and fuel items.
Prices of food and fuel items can be volatile in India because of an inefficient supply chain for farm products as well as the country’s large dependence on imported oil that exposes it to fluctuations in global crude oil prices.
Economists say higher demand due to festivities in India could also stoke inflation. A weak rupee and regular increases in the retail price of fuels could further push up input costs for businesses.
“October WPI inflation is likely to turn in an elevated 7% year-on-year, rebounding strongly from sub-5% in April-May,” Radhika Rao, an economist at DBS Bank said Wednesday.
Ms. Rao said policymakers face weakening growth even as inflation continues to rise, a condition that many economists say is taking India closer to dreaded stagflation.
With the central bank placing increasing importance on consumer inflation while formulating monetary policy, the odds of a rate increase to try to control CPI at the next policy review in December are rising.
“It seems unlikely to us that the RBI can ignore the CPI inflation numbers,” while deciding on its next rate action on Dec. 18, Robert Prior-Wandesforde, an economist at Switzerland-based bank Credit Suisse said Wednesday. “We had already penciled in a 25 basis points repo rate hike at that meeting and feel more confident about that,” he added.
RBI Governor Raghuram Rajan raised the main lending rate in September and October.
India’s inflation troubles deepened in October as food prices rose despite plentiful rainfall this year, a poll shows.
The wholesale price index, India’s most widely-watched measure of inflation, likely rose for the fifth straight month to 6.94% in October compared to a year earlier, according to the median estimate in a poll of 18 economists surveyed by The Wall Street Journal.
The rise compares with a 6.46% increase in September and would make it the biggest annual increase since February.
The government will announce the WPI data on Thursday.
Inflationary pressures were evident in consumer price data announced Tuesday. That showed inflation at the retail level hit a double-digit rate of 10.09% in October, the highest since March.
The main driver there was also high food prices, which jumped 12.6% from the levels last October.
In a research note issued after Tuesday’s data, economists at U.S.-based bank Morgan Stanley, Chetan Ahya and Upasana Chachra, said they had expected spiraling food prices to lose steam because of the normalization of the cost of vegetables, predictions of better farm output and smaller increases in prices paid by the government to farmers for their produce.
“However, given the continued increase in vegetable prices, and still-high inflation in cereals, we see upside risks emerging to food inflation outlook,” they added.
India received above average rainfall this year, brightening prospects that an uptick in farm output would help push down food prices. But the rain didn’t fall evenly.
This led to crop damage in some regions, causing supply shocks and a several-fold increase in the price of vegetables including onions which retailed at 100 rupees ($1.57) a kilogram in some parts of New Delhi in recent months.
These factors have proved a bugbear for authorities, driving up inflation and offsetting reductions in prices of other commodities such as non-food manufactured products, another closely watched indicator used to assess underlying inflationary trends by excluding food and fuel items.
Prices of food and fuel items can be volatile in India because of an inefficient supply chain for farm products as well as the country’s large dependence on imported oil that exposes it to fluctuations in global crude oil prices.
Economists say higher demand due to festivities in India could also stoke inflation. A weak rupee and regular increases in the retail price of fuels could further push up input costs for businesses.
“October WPI inflation is likely to turn in an elevated 7% year-on-year, rebounding strongly from sub-5% in April-May,” Radhika Rao, an economist at DBS Bank said Wednesday.
Ms. Rao said policymakers face weakening growth even as inflation continues to rise, a condition that many economists say is taking India closer to dreaded stagflation.
With the central bank placing increasing importance on consumer inflation while formulating monetary policy, the odds of a rate increase to try to control CPI at the next policy review in December are rising.
“It seems unlikely to us that the RBI can ignore the CPI inflation numbers,” while deciding on its next rate action on Dec. 18, Robert Prior-Wandesforde, an economist at Switzerland-based bank Credit Suisse said Wednesday. “We had already penciled in a 25 basis points repo rate hike at that meeting and feel more confident about that,” he added.
RBI Governor Raghuram Rajan raised the main lending rate in September and October.
