India Inflation Slows More Than Estimated in Boost for Modi

India’s consumer-price inflation slowed more than economists projected and factory output expanded in a boost for Prime Minister Narendra Modi’s government ahead of its first budget.

Consumer prices rose 8.28 percent in May from a year earlier, compared with 8.59 percent in April, the Statistics Ministry said in New Delhi today. The median of 40 estimates in a Bloomberg News survey was for an 8.4 percent gain. Industrial output rose 3.4 percent in April, a separate report showed, compared with an estimated 1.9 percent increase.

Modi’s administration has prioritized curbing food costs, part of a sweeping agenda that also seeks to revive economic growth from near a decade low. The central bank signaled this month it could ease monetary policy if inflation slows faster than anticipated, a scenario that faces risks from potentially weak monsoon rains that may hurt crop production.

“The key risk to inflation remains in terms of the total rainfall,” Rupa Rege Nitsure, Mumbai-based chief economist at Bank of Baroda, said by phone. “The government is talking about reforming the food distribution system and the pace of reforms will matter a lot.”

The rupee was little changed at 59.2550 per dollar before today’s data, while the benchmark S&P BSE Sensex index climbed 0.4 percent. The yield on the 10-year sovereign bond rose to 8.55 percent from 8.54 percent.

Monsoon Risk

India cut its rainfall prediction on June 9, saying monsoon showers that irrigate 55 percent of the nation’s farmland will be below normal as an El Nino pattern emerges.

Consumer inflation could slow to less than 6.5 percent if the monsoons are close to normal, while a drought could push the rate into double digits, Standard Chartered Plc estimates. Food prices, which comprise about 50 percent of the consumer-price index, rose 9.4 percent in May and fuel costs climbed 5.1 percent, today’s data show.

Finance Minister Arun Jaitley has indicated the budget due next month will contain the fiscal deficit to curb price pressures.

Reserve Bank of India Governor Raghuram Rajan held the repurchase rate at 8 percent on June 3 after raising it three times since September. Further tightening isn’t warranted if consumer price-gains stay on course to hit 8 percent by January 2015 and 6 percent a year later, while faster than anticipated disinflation may give room for policy easing, he said.

Wholesale prices probably rose 5.4 percent year-on-year in May, according to a Bloomberg survey before data due June 16.

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