India's Consumer Prices Rising 5.69%, Faster Than Expectations

  • Unexpectedly quickens 5.69% versus 5.4% est. as pulses surge
  • Government to unveil spending plan for FY17 on Feb. 29

India’s retail inflation unexpectedly accelerated to the fastest pace since August 2014, adding pressure on Prime Minister Narendra Modi’s government to contain spending when it presents its budget on Feb. 29.

Consumer prices rose 5.69 percent in January from a year earlier after a 5.61 percent increase in December, the Statistics Ministry said in a statement on Friday. The median of 36 economist estimates in a Bloomberg News survey predicted a 5.4 percent increase. Industrial production contracted 1.3 percent in December compared with an estimated 0.2 percent fall.

Central bank Governor Raghuram Rajan is watching Modi’s budget as well as inflation to determine whether to add to four cuts last year. Profligate government spending would imperil Rajan’s 5 percent inflation target for March 2017 as the rupee tumbles toward a record low amid the global market sell-off.

"CPI data for January confirm that the Reserve Bank was successful in meeting its near-term inflation target but also highlight the difficult task the RBI faces in achieving its medium-term targets," Mark Williams, a London-based economist with Capital Economics, wrote in a report. "We expect the repo rate to remain on hold at 6.75 percent throughout 2016."

The rupee fell 0.9 percent to 68.2350 a dollar this week, extending its loss to 3.1 percent this year, the worst performance in Asia after South Korea’s won. The yield on the sovereign bond due 2025 rose 7 basis points in 2016 to 7.83 percent and the benchmark stock index dropped about 12 percent.

India’s gross domestic product will grow 7.6 percent in the year through March, the government forecasts, overtaking a slowing China to be the world’s fastest-growing big economy. Even so, growth is below the country’s medium-term potential and structural reforms are needed to boost expansion without stoking inflation, Rajan said this month.

  • The consumer food-price index rose 6.85 percent in January from a year earlier after a 6.4 percent gain the previous month
  • The increase was led by a 43 percent surge in pulses
  • Fuel costs rose 5.3 percent; housing 5.2 percent
  • Health rose 5.6 percent; education 5.5 percent
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