Indian Inflation Quickens More Than Estimate Before Fed Review

Fed's Rate Path in Focus Now That March Is Certain

India’s wholesale inflation accelerated more than estimated, supporting the central bank’s decision to abandon its accommodative monetary stance before an expected increase in U.S. interest rates. Bonds fell.

Key Points

  • Wholesale prices gained 6.55 percent in February from a year earlier, the Commerce Ministry said in a statement in New Delhi on Tuesday
  • That’s faster than the median 6.1 percent estimate in a Bloomberg survey of 25 economists and January’s 5.25 percent increase
  • The benchmark consumer-price index, due at 5:30 p.m. in New Delhi, is seen rising 3.6 percent after January’s 3.17 percent climb

Big Picture

The data risks spurring the Reserve Bank of India’s concern on inflation, with the U.S. Federal Reserve expected to tighten on Wednesday and the International Monetary Fund saying India must be ready to do the same if price pressures pick up. The RBI’s staff said in a report on Friday that while effects of Prime Minister Narendra Modi’s demonetization have mostly worn off, the cash squeeze hasn’t had much impact on core inflation, which strips out volatile food and fuel costs.

Governor Urjit Patel last month changed the policy stance to neutral from accommodative -- saying it gives him flexibility to move either way on rates. His next decision is due April 6. Higher borrowing costs could make it tougher to boost investment: the number of new proposals sank to the lowest in a decade in the October-December quarter, according to the Centre for Monitoring Indian Economy.

Economist Takeways

  • "For the next three to four months, inflation should be ticking higher as an unfavorable base effect kicks in," said Anjali Verma, chief economist at PhillipCapital. "The move higher in wholesale prices should also be reflected in the CPI, where we are expecting food and fuel prices to move up."

Details

  • Food prices rose 2.69 percent, led by an 8 percent surge in wheat and 7 percent in fruits
  • Manufactured products rose 3.66 percent
  • Fuel and power soared 21 percent as global oil costs rebound
  • India revised the headline WPI rate for December to 3.68 percent from 3.39 percent
  • The benchmark sovereign bond due 2026 erased gains, pushing the yield to 6.91 percent from 6.88 percent before the data and 6.9 on Friday. Local markets were shut Monday for a public holiday
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