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Indian CPI Eases, Factory Output Rise Surprises Before Vote

Indian consumer-price inflation eased for a third straight month in February while factory output unexpectedly rose in January, as interest-rate increases cooled Asia’s fastest price rises before elections next month.

The consumer-price index rose 8.1 percent from a year earlier, compared with 8.79 percent in January, the Statistics Ministry in New Delhi said yesterday. The median estimate in a Bloomberg survey of 45 analysts had been for an 8.3 percent increase. Industrial output expanded 0.1 percent in January, a separate report showed.

Prime Minister Manmohan Singh’s Congress party is headed for its worst-ever performance in elections starting April 7 as elevated price pressures, slowing growth and a series of corruption scandals erode support, opinion polls show. Reserve Bank of India Governor Raghuram Rajan has raised interest rates three times since taking over the central bank in September as authorities weigh a shift to make CPI a monetary policy anchor.

“Inflation is still high but given the kind of levels we have seen in the recent past, at least the declining trend is something that one can take as a positive,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. “For the central bank, it is a prolonged pause on rates, with an upside risk emanating in case of significant pressure on food prices and an expansionary budget.”

The rupee, down about 11 percent versus the dollar in the past year, strengthened 0.4 percent to 61.0050 per dollar at 12:41 p.m. in Mumbai. The S&P BSE Sensex (SENSEX) index advanced 0.3 percent. The yield on the government bond due November 2023 rose three basis points to 8.75 percent.

Factory output rose in January for the first time in four months. The median estimate in a Bloomberg survey of 46 analysts had been for a 0.9 percent contraction.

Rate Increase

Quelling inflation is crucial for attaining faster growth over the longer term, Rajan said Feb. 23. He unexpectedly raised the repurchase rate on Jan. 28 to 8 percent from 7.75 percent, joining nations from Turkey to Brazil in raising interest rates as the U.S. Federal Reserve reduced monetary stimulus. The next policy review is scheduled for April 1.

India’s economy will expand 4.9 percent in the fiscal year ending March 31, faster than the decade-low expansion of 4.5 percent last year, according to the Statistics Ministry.

A central bank panel in January proposed reducing consumer-price inflation to 8 percent within one year and 6 percent by 2016, at which point the RBI should adopt a 4 percent target with a band of plus or minus two percentage points.

‘Over Time’

The RBI aims to bring down inflation “over time rather than abruptly,” Rajan said Feb. 26. India’s inflation is the fastest among 18 Asia-Pacific economies tracked by Bloomberg.

Wholesale price inflation slowed in January by more than economists had estimated to 5.05 percent, compared with 6.16 percent in December, the Commerce Ministry said.

In a bid to woo voters and boost consumption, Finance Minister Palaniappan Chidambaram, in his Feb. 17 budget, cut excise tax rates on sport-utility vehicles, small cars and motorcycles until June 30 while urging lawmakers to pass a goods and services tax. He also reduced the excise duty for a range of consumer goods, including washing machines, DVD players and microwave ovens.

India’s fiscal position remains weak and a cut in spending to meet the budget gap estimate this year will probably hurt growth, Moody’s Investors Service said on Feb. 18. Standard & Poor’s warned in November India could face a downgrade if the vote fails to produce a government capable of reviving growth.

No party will get a majority to form the government after the elections, according to opinion polls that show the incumbent Congress party losing power. The BJP would win as many as 213 of 543 seats up for grabs in the lower house of parliament with Congress winning as many as 110, according to a survey published on March 7 by CNN-IBN television channel and Centre for the Study of Developing Societies.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net Karthikeyan Sundaram

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