NEW DELHI: India’s consumer inflation likely eased for the first time in six months in January as food prices cooled, undershooting the central bank’s target for the month and bolstering hopes of a rate cut later this year, a survey shows.
The consumer-price index is expected to have risen 5.4% from a year earlier, according to the median estimate of 14 economists polled by The Wall Street Journal. It climbed 5.61% in December.
If the reading matches the estimate, it would be comfortably below the 6% target that the Reserve Bank of India set for the month. That could drive up expectations of an interest-rate cut by the central bank in the second quarter.
“The RBI will easily achieve its target for January 2016 but the key would be how inflationary pressures build up in the coming months, especially on the back of possible spoilage in winter crops,” said Rishi Shah, an economist at Deloitte.
Economists say the government’s decision on whether to stick to its fiscal deficit targets, which will be revealed in the annual budget at the end of this month, would influence how soon the central bank resumes lowering interest rates. A future cut will also depend on whether inflation stays on track to ease to the RBI’s 5% target for March 2017.
The central bank lowered rates four times last year, but has left them unchanged so far in 2016 because missing the deficit targets could push up government borrowing and inflation.
Rising prices of pulses and some other food items have already pushed up inflation, although a sharp decline in global prices of commodities, particularly crude oil, has helped offset some of the pressures. The benefit of cheaper oil has been more evident in India’s wholesale price index, which gives greater weight to fuel.
Wholesale prices have been falling for more than a year, in contrast to the modestly high increase in consumer prices. The decline, however, has been slowing.
Nine of the economists in the poll who provided estimates for wholesale inflation expect prices to edge 0.1% lower year-over-year in January. They had fallen 0.73% in December. The government will announce the more closely-tracked consumer inflation data Friday and wholesale prices data Monday.
