February 10, 2012 / 10:28 AM / 6 years ago

Inflation seen easing further in Jan: Reuters poll

REUTERS - India’s headline inflation rate is expected to have cooled to 6.60 percent year-on-year in January from 7.47 percent in December, helped by easing food prices , a Reuters poll showed.

Workers prepare to carry a packed basket of vegetables at a wholesale vegetable market in Kolkata January 19, 2012. REUTERS/Rupak De Chowdhuri/Files

Inflation in India is significantly higher than in other major developing economies such as China, Russia and Brazil and limits the ability of policymakers to stimulate growth.

Despite a series of 13 interest rate increases by the Reserve Bank of India (RBI), inflation remained stubbornly above 9 percent for a year until December, when it slowed to a two-year low.

Forecasts in a Reuters poll of 25 economists about the January wholesale price index (WPI), the main inflation gauge, ranged from a year-on-year rise of 6.10 percent to 7.70. Only a few of the forecasts projected the January figure at more than 7 percent.

India’s food price data, which was released on a weekly basis until February 2, last showed that the food price index declined 1.03 percent in the year to January 14.

However, continued rises in the other components of the wholesale price index suggest that despite cooling food prices inflation would remain high.

“The upward risks to inflation still persist as manufactured articles, as well as fuel group inflation, remain elevated,” said Arun Singh, senior economist at Dun & Bradstreet.

The RBI, which has shifted its focus to reviving growth after two years of battling inflation , cut the cash reserve requirements for banks by 50 basis points last month to ease tight monetary liquidity conditions.

But the central bank left its key interest rate on hold, indicating that despite a shift in its monetary policy stance, the RBI is waiting until clear signs emerge that inflation is under control before it considers rate cuts.

The RBI’s tight monetary policy coupled with fragile global economic conditions and sluggish investment have resulted in a slowdown in Indian economic growth.

Growth might dip below 7 percent in the current fiscal year, according to government forecasts, the slowest pace since the 2008 financial crisis.

A Reuters poll conducted last month showed that economists expect inflation to average 8.7 percent in the fiscal year that will end on March 31, and to ease to 6.5 percent for the next financial year.

Reporting by Deepti Govind; Polling by Ruby Cherian; Editing by Jonathan Cable, Aradhana Aravindan and Richard Borsuk

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