India's Feb consumer inflation likely edged up for third month

Published Wed, Mar 11, 2015 · 11:25 PM
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[NEW DELHI] India's consumer inflation probably edged up in February for the third straight month, underscoring the risk of a rebound in inflationary pressures if fuel and food prices pick up.

A plunge in global oil prices and weak consumption have driven down inflation in Asia's third-largest economy to around 5 per cent from double digits in 2013, giving room to the central bank to cut interest rates twice so far this year to spur growth.

Consumer prices likely rose 5.2 per cent in February from a year earlier, according to a Reuters' poll of economists, compared with January's 5.11 per cent, on higher food prices.

Industrial output, meanwhile, continued to stumble, with growth seen slowing to 0.65 per cent in January from December's 1.70 per cent. Both sets of data will be released at around 1200 GMT on Thursday.

India, which has long battled volatile prices, formally adopted inflation targeting in February, a historic monetary policy overhaul that marked a victory for Reserve Bank of India Governor Raghuram Rajan. The government and the bank set a consumer inflation target of 4 per cent from next year, with a band of plus or minus 2 percentage points.

Central banks from Asia to Europe and Canada have unleashed a wave of easing in recent months seeking to defuse deflationary pressures and bolster sluggish economic growth.

Among the BRICS group of major emerging economies, China's consumer inflation picked up in February to 1.4 per cent, while in Brazil, inflation hit the highest in a decade at 7.7per cent.

India is a long way from worrying about deflation, but under government and investor pressure to revive flagging growth the Reserve Bank of India (RBI) cut policy rates by 25 basis points last week for the second time this year, acknowledging a deficit cutting roadmap set by the government in the 2015/16 budget.

Many economists see at least one more rate cut this year, but some fear retail inflation could accelerate in coming months after a recent hike in local petrol and diesel prices and a possible seasonal rise in food prices. "Unseasonal rains in March and the seasonal trend of firming up of vegetable prices as the summer months approach would push up food inflation in the near term," said Aditi Nayar, an economist at ICRA, the Indian arm of rating agency Moody's.

Economists expect the RBI will leave rates unchanged in its policy review on April 7, unless retail inflation falls sharply in February. "If the monsoon is normal and crude oil prices do not stage a sharp rebound, we expect further easing of 25-50 bps over the course of 2015," said Mr Nayar.

Since taking charge in May, Prime Minister Narendra Modi's government has taken steps to tame prices, including reining in subsidies and controlling the price paid to farmers of wheat and rice crops.

Finance Minister Arun Jaitley, who presented his first full-year budget last month, has set a growth target of 8.5 per cent for the 2015/16 financial year beginning April and inflation at 5 percent by the end of March.

India's economy is projected to expand at 7.4 per cent in the current fiscal year, its fastest pace in three years based on new GDP series estimates.

In a report released on Wednesday, the IMF forecast India's economy will grow by 7.2 per cent this year and by 7.5 per cent in the next fiscal year.


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