Indian Inflation Quickens on Food Costs Before Fed's Rate Review

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

India’s inflation accelerated more than predicted due to higher food prices, supporting the central bank’s decision to abandon its accommodative policy stance before an expected increase in U.S. interest rates.

Key Points

  • Consumer prices rose 3.65 percent in February from a year earlier, the Statistics Office said in a statement in New Delhi on Tuesday
  • That’s faster than the 3.6 percent median estimate in a Bloomberg survey of 31 economists and January’s 3.17 percent increase
  • Wholesale prices gained 6.55 percent, data showed earlier Tuesday, compared with a 6.1 percent prediction and January’s 5.25 percent increase
  • Bonds erased gains after WPI data; the yield on the note due 2026 closed at 6.9 percent in Mumbai, unchanged from Friday. The markets shut before the CPI publication and were closed Monday for a public holiday

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 Takeaways

  • "We expect food prices to continue rising and because of that, headline CPI should show an uptrend," said Sonal Varma, Singapore-based economist at Nomura Holdings Inc. If the Fed retains the rate path announced earlier, there wouldn’t be any significant impact for Indian monetary policy, she said.
  • "For the next three to four months, inflation should be ticking higher as an unfavorable base effect kicks in," Anjali Verma, chief economist at PhillipCapital, said after the WPI data.


  • Food inflation quickened to 2.01 percent from January’s 0.61 percent
  • The increase was led by an 8.3 percent surge in fruit prices and 5.3 percent rise in cereals, which offset lower vegetable and pulses costs
  • Fuel rose 3.9 percent; education and transport about 5.4 percent

— With assistance by Manish Modi

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