India’s inflation galloped to its highest level in more than three years, giving monetary policy makers reason to keep interest rates on hold despite flagging economic growth.
Consumer price inflation accelerated to 5.54% in November from a year earlier, higher than the 5.3% median estimate in a Bloomberg survey of 39 economists.
It’s the highest print since July 2016 and way above the Reserve Bank of India’s 4% medium-term target.
With food prices, led by onions, showing little signs of easing and telecommunication companies recently raising tariffs, inflation will likely remain sticky, making it difficult for the central bank to offer more stimulus.
The RBI last week cited inflation risks as the main reason for a surprise pause after 135 basis points of rate cuts this year.
“The inflation trajectory will likely hover above the RBI’s comfort level of 4%, implying that further rate cuts will be difficult,” Upasna Bhardwaj, an economist with Kotak Mahindra Bank Ltd in Mumbai, said before the data.
India isn’t the only emerging economy grappling with surging food prices.
China is confronted with rising meat prices, while supply problems are driving up food costs in Turkey and Nigeria.
Data from the United Nations show that global food prices rose at the fastest pace in October in more than two years. In India, prices have reached a level where it’s making the inflation-targeting central bank wary of more easing, even though it retained an accommodative policy stance.
Interest rate swap markets are now pricing out any rate cuts in the coming months.
That isn’t surprising since the RBI expects food prices to remain elevated in the near term, especially for items such as milk, pulses and sugar.
The central bank raised its inflation projection for the second half of the financial year ending March to a range of 4.7%-5.1% from 3.5%-3.7% previously.
Separate data showed factory output contracted 3.8% in October governor Shaktikanta Das last week said it would be prudent to wait for more clarity on inflation despite a strong case to look through the current food price spike.
He expects the onset of the winter-crop sowing season as well as ample reservoir levels to help stabilise food prices.
The government has also stepped up imports of onions to curb price pressures.
Core inflation – which strips out volatile food and fuel prices – remains subdued, a reflection of weak demand in an economy that grew at its slowest pace in more than six years last quarter.
“We think weak growth in household spending will keep price rises in other household goods and services subdued,” Rahul Bajoria, senior economist at Barclays Bank Plc said before the data was released.
from Gulf Times https://ift.tt/2PLH2x5
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