India Wholesale Inflation Eases to 9-Month Low in February

Indian wholesale-price inflation eased to a nine-month low in February as higher borrowing costs helped damp price pressures, suggesting official interest rates will be maintained at their current level next month.

The wholesale-price index rose 4.68 percent from a year earlier, compared with 5.05 percent in January, the Commerce Ministry said in New Delhi today. That was below the median estimate in a Bloomberg News survey of 45 analysts for a 4.9 percent increase.

The report gives Reserve Bank of India Governor Raghuram Rajan’s scope to keep the benchmark interest rate on hold at 8 percent after three increases since he took his post in September. Consumer inflation in February moderated to the lowest since January 2012, data this week showed.

“This number looks good, but inflation is likely to surge again as untimely rains damaged crops,” said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai. “The possibility of prices rising again and still elevated retail inflation doesn’t give the RBI room to cut rates. At best, it can hold rates at this juncture.”

The rupee weakened 0.3 percent to 61.3675 per dollar at 2:00 p.m. in Mumbai, paring its losses. The S&P BSE Sensex index dropped 0.8 percent. The yield on the 10-year government bond due November 2023 climbed to 8.77 percent from 8.74 percent yesterday. The currency has declined 11.6 percent in the past year, increasing the cost of imports such as crude oil.

Crop Damage

Unseasonal rains and hailstorms earlier this month probably damaged 500,000 hectares of crops, mainly wheat, Agriculture Commissioner J.S. Sandhu said March 11. Damage is likely to have occurred to the wheat crop in Madhya Pradesh, Rajasthan and Maharashtra.

Gains in food prices slowed to 8.12 percent in February from a year earlier, and from 8.8 percent in January, today’s report showed. Fuel and power increased 8.75 percent. Non-food manufactured goods prices, a measure of core inflation, rose 3.15 percent after a 3.04 percent gain in January, Bloomberg calculations based on the data showed.

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 boosting 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, the Statistics Ministry forecasts.

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.

Consumer-price inflation slowed to 8.1 percent in February -- the lowest in more than two years -- from 8.79 percent in January as food costs eased. Industrial production expanded 0.1 percent in January, according to a separate report this week.

Inflation has been among the key issues in the nation’s current general election campaign. India’s incumbent Congress party-led government will lose power in voting that start next month and concludes in mid-May, polls indicate. The Congress itself is probably headed to its worst-ever performance and the Bharatiya Janata Party, led by prime ministerial candidate Narendra Modi, will likely win power, according to polls.

Election Issue

Average Indian inflation since the last elections in 2009 has been among the highest since the oil price shock of the early 1970s, said Surjit Singh Bhalla, chairman of Oxus Research and Investments in New Delhi.

Consumer prices averaged 10.07 percent in 2013 and 9.7 percent in 2012. Food price inflation in particular has negatively affected the rural poor, and they are a significant voting constituency, said Bhalla.

About two thirds of India’s population of 1.2 billion people lives on less than $2 a day, according to the World Bank.

Rajan on Feb. 26 said the central bank aims to bring down inflation “over time rather than abruptly” in its effort to curb price pressures and generate sustainable growth.

“Rather than administer shock therapy to a weak economy, the RBI prefers to disinflate over time rather than abruptly” raise interest rates, Rajan said then. “As of now, we believe the rate is appropriately set.”

Related News and Information: Indian CPI Eases, Factory Output Unexpectedly Rises Before Vote

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