High inflation in Nov set to keep pressure on RBI

BANGALORE Wed Dec 11, 2013 10:32am IST

Labourers unload sacks filled with onions at a wholesale vegetable market in Chennai November 14, 2013. REUTERS/Babu/Files

Labourers unload sacks filled with onions at a wholesale vegetable market in Chennai November 14, 2013.

Credit: Reuters/Babu/Files

Related Topics

BANGALORE (Reuters) - Inflation is forecast to remain close to 9-month highs in November, a Reuters poll showed, putting further pressure on the RBI to follow up on its back-to-back interest rate hikes despite slowing economic growth.

The poll of 26 economists predicted India's November wholesale price inflation was at 7 percent year-on-year, unchanged from October - which was the highest since February.

Consumer prices were forecast to have risen 10 percent annually last month, barely changed from the 10.09 percent clocked in October.

"A moderation is expected in primary articles (prices), particularly food. At the same time, there could be some pickup in non-food items," said Sujit Kumar, economist at Union Bank.

Reserve Bank of India Governor Raghuram Rajan said last month high inflation warranted an appropriate policy response after raising the key repo rate for the second time in as many months in October to 7.75 percent.

If actual data for November reflects median forecasts in the poll it would harden expectations for another interest rate hike at the RBI's meeting next week.

"Will Dr Rajan feel the need to respond to the rise in both WPI and CPI inflation? We expect he will and still look for a (final) 25 basis point hike at the 18 December meeting," wrote Robert Prior-Wandesforde, research analyst at Credit Suisse in a note to clients.

Persistently high food price inflation, stoked by weak supply of staple items, has forced Rajan to tighten monetary policy at a particularly vulnerable time for the economy.

The interest rate hikes come even as the pace of growth has slowed to its lowest in a decade, with some analysts fearing Asia's third-largest economy is potentially entering a stagflationary-type environment, marked by high inflation but weak growth.

Those concerns were underscored by data last month showing the economy notched up a fourth successive quarter of below 5 percent growth in the three months through September.

That rate is far lower than the 8 percent growth the government says is needed to reduce poverty and provide more jobs for the country's burgeoning youth population.

October's wholesale food inflation remained close to a three-year high at 18.19 percent. Rising food prices were also reflected in a faster-than-expected spike in consumer prices that month.

Although a good monsoon harvest and a consequent increase in supply probably brought down the pace of food inflation last month, retail inflation stayed high, economists said.

Last month Rajan acknowledged that food prices were "worryingly high", underlining the delicate balancing act for policy makers as they try to tame inflation at a time of weak growth.

(Reporting by Deepti Govind; Polling by Sarbani Haldar; Editing by Shri Navaratnam)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared
People walk in the Wipro campus in Bangalore June 23, 2009. REUTERS/Punit Paranjpe/Files

Wipro Q4 net profit beats estimates, rises 29 percent

Wipro posted a 29 percent rise in its fourth-quarter net profit, beating expectations, helped by increased IT spending by its customers. For the quarter ended March 31, the company said it earned 22.27 billion rupees compared with 17.29 billion rupees a year earlier.  Full Article | Full Coverage 

REUTERS SHOWCASE

Election 2014

Election 2014

India holds biggest day of voting with BJP gaining strength  Read | Full Coverage 

Market Eye

Market Eye

Sensex jumps 351 points, snaps 3-day losing streak  Full Article 

Insider Trading Case

Insider Trading Case

Ex-Goldman director Rajat Gupta to surrender June 17 in insider case.  Full Article 

Expansion Plans

Expansion Plans

Reliance Industries, HPCL Mittal plan refinery expansions.  Full Article 

S&P on India

S&P on India

S&P: India's ratings to depend on next govt econ, fiscal policies.  Full Article 

Ambitious Aim

Ambitious Aim

In green car race, Toyota adds muscle with fuel-cell launch.  Full Article 

Deal Talk

Deal Talk

Piramal to buy 20 percent stake in Shriram Capital for $334 million.  Full Article 

Bond Market

Bond Market

A star abroad, RBI boss riles bond traders at home  Full Article 

Reuters India Mobile

Reuters India Mobile

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