Photographer: Dhiraj Singh/Bloomberg

India CPI at 2014 High as Investors Await Rajan’s Successor

  • Consumer prices rose 5.77% versus 5.79% survey estimate
  • Rajan due to review policy Aug. 9, his term ends in September

India’s retail inflation held at a 22-month high, as investors await the appointment of a successor to Governor Raghuram Rajan whose term ends in September.

Consumer prices rose 5.77 percent in June from a year earlier after a 5.76 percent increase in May, the Statistics Ministry said in a statement on Tuesday. The median of 29 estimates in a Bloomberg survey of economists had predicted a 5.79 percent gain. Industrial production rose 1.2 percent in May compared with an estimated 0.3 percent decline.

While Rajan wants to ease one of Asia’s strongest price pressures to 5 percent by March 2017, the future is more uncertain. His successor -- who could be named as early as Tuesday -- will be key in determining whether the 4 percent target for 2018 remains.

"Our sense is that over a period of time you will see a significant softening" in inflation, said Siddhartha Sanyal, chief India economist at Barclays Bank Plc. The central bank will keep rates unchanged at the next review due Aug. 9 and will cut sometime in the October-December quarter, he said.

India’s bonds and bank stocks have rallied on speculation that the new governor will lower borrowing costs. Rajan has kept the benchmark repo rate at a five-year low of 6.5 percent since April, as risks to inflation loom from a pay increase for state employees.

  • The consumer food price index rose 7.79 percent in June from a year earlier, after a 7.47 percent increase the previous month
  • That was led by a 27 percent surge in the cost of pulses, while sugar and confectionery rose 17 percent and vegetables 15 percent
  • Education costs rose 5.4 percent
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