India’s Inflation Quickens More Than Estimated for 2nd Month

  • Consumer prices rose 5.76% verus 5.60% survey estimate
  • Central bank is targeting 5% inflation by March 2017

India’s retail inflation accelerated more than estimated, the second surprise in as many months that reduces room for more interest-rate cuts.

Consumer prices rose 5.76 percent in May from a year earlier after a 5.47 percent increase in April, the Statistics Ministry said in a statement on Monday. The median of 28 estimates in a Bloomberg survey of economists had predicted a 5.6 percent gain.

Focus now shifts to the monsoon, which waters more than half of India’s farmlands and can keep food costs low. While the weather department has forecast above-normal rainfall this year after two droughts, more clarity will emerge only next month on how much help it will offer central bank Governor Raghuram Rajan in meeting his 5 percent CPI target for March 2017.

“This data does show there is possibly an upside risk to RBI’s inflation target,” said Kunal Kundu, a Bengaluru-based economist at Societe Generale SA. “A normal monsoon would help in cooling down food prices but that effect will be felt post harvest.”

Rajan kept interest rates on hold this month after five cuts since January 2015, and said “the inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain.” While gross domestic product accelerated a world-beating 7.6 percent in the year through March, private investment is weak and exports continue to fall.

  • The consumer food prices rose 7.55 percent in May after a 6.4 percent jump in April
  • The acceleration was driven by a 32 percent surge in pulses
  • Health costs increased 5.1 percent; education 5.85 percent; vegetables 10.77 percent

The rupee weakened for a third day, retreating 0.6 percent to 67.14 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The data was released after close of local markets.

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