October inflation surprises; slowest in 8 months

NEW DELHI Thu Nov 15, 2012 9:30am IST

1 of 6. A vendor waits for customers at a wholesale vegetable market on the outskirts of Jammu November 14, 2012.

Credit: Reuters/Mukesh Gupta

NEW DELHI (Reuters) - India's headline inflation unexpectedly eased to its slowest pace in eight months in October, a welcome relief from a string of bad data but still high enough to be a headache for policymakers struggling to balance the need for growth with taming prices.

Wholesale prices - India's main inflation gauge - rose an annual 7.45 percent, the slowest pace since February, government data released on Wednesday showed.

The figure was slower than the 7.81 percent recorded in September, as food and fuel prices rose less quickly, and less than the 7.96 percent predicted in a Reuters poll of analysts.

With India's economy on track to grow at its worst pace in a decade, and a general election due in just over a year, the government has been pressing the Reserve Bank of India (RBI) to cut interest rates to revive growth. But the central bank has rebuffed those calls, saying prices are still rising too fast to risk loosening policy.

The latest inflation reading is still seen as too high for the RBI to bow to pressure from the government and businesses by cutting rates at its next policy review in December. However, it could do so early next year.

"Despite the downtick, elevated inflation will prevent the RBI from easing aggressively," said Jyoti Narasimhan, senior principal economist, IHS Global Insight.

"With inflation unlikely to recede substantially, we no longer expect the RBI to soften its stance and cut policy rates on 18 December to support flagging economic growth."

India's financial markets were closed on Wednesday for a festival.

India rates, WPI graphic link.reuters.com/saq26s

DISMAL DATA

Data on Monday showed the monthly trade deficit climbed to its highest-ever level, while industrial production surprisingly contracted, dashing hopes that the economy was regaining traction.

Prime Minister Manmohan Singh's government is trying hard to get the economy back to the near double-digit growth that helped project India as a rising global power and helped Singh's Congress party win two back-to-back elections since 2004.

But with state polls looming and a general election due in 2014, an economic revival would help Singh generate resources to fund big-ticket welfare programmes meant for his party's core constituency comprising poor and rural voters. It would also help mitigate anger at rising prices.

Singh said in a speech over the weekend that his government had "dispelled doom and gloom" about the economy with a series of policy steps, including curbing fuel subsidies and liberalising foreign investment rules.

But investors are clamouring for the government to do more. They want Singh to push ahead with a reform agenda that has progressed fitfully, calling for a more business-friendly tax regime and speedier clearances for infrastructure projects.

Singh has faced opposition to flagship policies from powerful regional allies as well as opposition parties, setting the stage for another stormy parliament session when it reconvenes on Nov 22.

"The (inflation) number is better than what most people had expected, but based on the past experiences there is a likelihood of the numbers getting revised," said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.

The government revised up August inflation to 8.01 percent from the 7.55 percent initially reported.

"The Reserve Bank will wait till the headline inflation falls by 100 basis points more. The government is putting on pressure, but the Reserve Bank will not succumb to that pressure until the inflation comes down to the comfort zone," Rupa Rege Nitsure said. (Additional reporting by the Mumbai bureau and Arup Roychoudhury in New Delhi; Editing by Simon Cameron-Moore & Kim Coghill)

FILED UNDER:

REUTERS SHOWCASE

WTO Trade Deal

WTO Trade Deal

WTO clinches first global trade deal in its history  Full Article 

Kashmir Attack

Kashmir Attack

Ten dead in Kashmir's worst militant attack in more than a year  Read 

OPEC Meeting

OPEC Meeting

Saudis block OPEC output cut, oil price sinks further.  Full Article 

GDP, RBI Preview

GDP, RBI Preview

GDP growth set to weaken, business wants reforms more than rate cut  Full Article | Related Story 

Social Media

Social Media

Twitter to start tracking users' mobile apps  Full Article 

Jaitley to Rajan

Jaitley to Rajan

Jaitley likely to meet Rajan on Monday to urge rate cut  Full Article 

Banking Sector

Banking Sector

India moves to allow more businesses to offer basic financial services.  Full Article 

Forever21 in India

Forever21 in India

Forever21 sets sights on Indian cities, but please hold the hot pants  Full Article 

Japan Economy

Japan Economy

Japan inflation slows in October, output and spending show signs of recovery  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage