Inflation seen rising to 5.6% in December

With inflation running above the Reserve Bank of India’s March 2017 target of 5%, future interest rate cuts will likely be hard to come by


Photo: Reuters
Photo: Reuters

Reuters: Indian consumer inflation likely rose slightly in December, due to higher food costs and increases in fuel duties, a Reuters poll found, pushing prices further away from the central bank’s medium-term target.

Retail inflation is expected to have risen 5.6% annually in the last month of 2015, according to a survey of 33 economists, higher than November’s 5.41%. The data will be released on Tuesday.

With inflation running above the Reserve Bank of India’s (RBI) March 2017 target of 5%, future interest rate cuts will likely be hard to come by.

The RBI left policy rates unchanged in December. It holds its next policy meeting in early February.

“We think that the window for further easing following the cumulative 125 basis points of rate cuts over the past 12 months has now shut,” wrote Shilan Shah, India economist at Capital Economics. “Further ahead, a potentially large rise in public sector wages would add to the RBI’s difficult task in meeting its medium-term inflation targets.”

One basis point is one-hundredth of a percentage point.

In November, a government panel recommended hiking the wages of about 10 million current and former government employees by nearly 25%. Pay rises could boost economic growth through higher demand but data due on Tuesday will likely show factory activity growth dropped significantly in November.

Indian industrial output was forecast to rise just 2.3% annually in November, after a sharp rise in October that came largely due to a low statistical base.

Infrastructure output, which accounts for more than a third of factory activity, shrank 1.3% on the year in November, its first fall in seven months. Infrastructure output was dragged down by lower electricity production and a contraction in cement and steel output. Reuters