A vendor drinks tea at his stall in a wholesale vegetable market, in the southern Indian city of Kochi, yesterday. India’s headline inflation eased to a five-month low of 6.16 percent in December.
NEW DELHI: India’s headline inflation eased to a five-month low in December on lower vegetable prices, providing some relief to the ruling coalition before a national election and increasing the odds that interest rates will stay on hold this month.
The Congress party is struggling to win back voters but is grappling with its worst economic slowdown in a decade amid surging food prices that have largely affected the country’s rural poor.
The wholesale price index (WPI), India’s main inflation indicator, climbed an annual 6.16 percent last month, its slowest pace since July 2013. The reading compared with a 7.00 percent rise predicted by economists in a Reuters’ poll. Wholesale prices had increased 7.52 percent on year in November — their fastest clip in 14 months.
The pace of gains in December was tempered by a softening in vegetable prices that fell nearly 30 percent from November, bringing down overall food inflation for the month to 13.68 percent from 19.93 percent a month ago.
Yesterday’s WPI data follows an easing in consumer inflation that slowed to a three-month low of 9.87 percent last month after vegetable prices dropped nearly 19 percent from November.
The latest inflation numbers are expected to give the Reserve Bank of India (RBI) some leeway to keep interest rates on hold at its upcoming policy meeting on January 28. “The WPI data has surprised on the downside and seen in conjunction with the CPI (consumer price index) data should strengthen the case for a rate pause in the Jan review,” said A Prasanna, an economist at ICICI Securities primary dealership Ltd.
Indian bonds as well as interest rate-sensitive shares rallied after the WPI data. The benchmark 10-year bond yield fell 5 basis points to 8.63 percent from levels before the data. The benchmark 5-year swap rate and the 1-year rate each fell 4 basis points, dealers said.
Wholesale prices for vegetables had surged 116 percent between March and November, resulting in a drubbing for the ruling Congress party in recent state elections.
Cooling prices will bring some relief to the party as it heads into national elections due by May, seeking a third term. Most opinion polls are predicting heavy losses for the party, in part due to its failure to control inflation.
Persistently high inflation in Asia’s third-largest economy is pressuring household budgets and company profits, hitting consumer demand as well as corporate investments.
After raising interest rates twice since September, the RBI left rates steady last month, ignoring high inflation readings as it feared aggressive rate hikes could be damaging for a weak economy.
reuters
