Inflation seen slowing slightly in Oct

Inflation seen slowing slightly in Oct

New Delhi: Wholesale price inflation in India probably slowed only a tad to 9.61% in October from 9.72% the month before, as tighter monetary policy had little effect on high food and energy prices, the median forecast in a Reuters poll showed.

The Reserve Bank of India (RBI) has raised interest rates 13 times since early 2010, the last increase in October, but price pressures remain high due to supply constraints and global factors.

India’s main gauge of inflation has remained above 9% for almost a year. Forecasts from 20 economists taken this week ranged from 9.20 to 9.80% rise in the wholesale price index in October.

Food price inflation slowed slightly to an annual 11.81% in the week to 29 October, government data showed on Friday.

It had hit 12.21% a week before, its fastest pace since late January, as the cost of milk, eggs, meat and fish jumped.

India, which imports around 75% of the oil it consumes, has also been hurt by depreciation in the rupee that fell to its lowest in more than two-and-a-half years on Friday.

Last week, state-run refiners raised gasoline prices by about 2.7%, the fourth increase this year.

Analysts in a Reuters poll in late October forecast global crude oil prices to stay high despite widespread expectations of an economic slowdown.

Factors to watch

* India’s industrial output grew at its slowest pace in two years in September, providing further evidence of deceleration in the economy and raising the odds of a pause in the central bank’s 20-month-old policy tightening cycle.

* Production at factories, mines and utilities grew 1.9% from a year earlier in September, lower than a downwardly revised 3.6% growth a month ago and below the median forecast for a 3.5% rise in a Reuters poll.

* India’s fuel price index climbed an annual 14.5% in the week to 29 October, slowing slightly from 14.7% two weeks before.

* The primary articles price index rose an annual 11.43%, compared with 12.08% a week earlier.

* The central bank has said it would likely hold off further rate hikes as it expects headline inflation to ease beginning next month.

* Last month, the RBI revised its growth forecast for the fiscal year ending in March to 7.6% from 8%, reiterating its forecast that inflation would fall to 7% by March 2012.

Market impact

* Government bond yields could move up 4-5 basis points if inflation goes into double digits, dealers said.

* Overnight indexed swaps (OIS) could move up by 5-7 basis points if inflation surges above 10%, they said.

* Dealers said if inflation were to fall below 9%, which is not likely, yields could fall by 2-3 basis points.

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