NEW DELHI: India’s consumer inflation likely eased to the lowest level in 16 months in November, as a government move to withdraw high-value bank notes hit demand, a poll of economists showed. The consumer-price index is expected to have risen 3.7% from a year earlier, according to the median estimate of 12 economists polled by The Wall Street Journal. If the reading matches the estimate, it would the lowest since July 2015 and below October’s 4.2% reading. The estimates ranged between 3.3% and 4.1%. “We are expecting a sharp correction in consumer inflation led by vegetable and fruits prices,” said Gautam Singh, an economist at Spark Capital Advisors.
Prices of some key items such tomatoes, onions and fruit have fallen by about a quarter, he said, following the government’s move to withdraw 86% of currency from circulation as part of a crackdown on tax evaders and counterfeiters. The decision created a shortage of cash that sparked widespread disruption in the economy, affecting payments everywhere from factories to farm supply chains.
Adding to pressure on prices has been the improved prospects of farm output this year after the country received normal levels of rainfall during the June to September monsoon season for the first time in three years. That has eased food-supply concerns, pushing the food inflation rate down by more than half to about 3% in October from about 8% in July. Many economists predict inflation would stay well below the Reserve Bank of India’s 5% target for March, although the central bank in its latest monetary policy review Wednesday warned of risks of the target being overshot.
The RBI said core inflation, or price rises excluding the volatile food and fuel items, have been sticky while oil prices too could rise following the deal between major oil-producing nations to cut production. While the central bank this week left its main lending rate unchanged, surprising economists and investors who were expecting a cut, many analysts believe it will do so in February when there will be greater certainty of inflation staying below the 5% target. “Another 25 basis points rate cut looks highly probable to us in February,” said Anubhuti Sahay, an economist at Standard Chartered Bank. There could be another matching cut in April, “although that is uncertain at this time,” she said.
Meanwhile, India’s wholesale prices likely rose for the eighth consecutive month in November as global commodity prices slowly rise. The median forecast of 11 economists was for the wholesale-price index to climb 3% from a year earlier, marginally slower than the 3.39% increase in October. The estimates range between 1.7% and 3.5%. Wholesale prices fell for 17 successive months until March, driven by the sharp decline in commodity prices, particularly crude oil. The government will announce the consumer prices data on Tuesday and wholesale prices data on Wednesday.
