India's consumer inflation likely accelerated in October to 5.93 per cent, close to the top of the Reserve Bank of India's 2 to 6 per cent target range, as a broad-based rise in food prices pushed up household costs, a Reuters poll of economists showed on Friday, November 6.
Source: Reuters via EuropeSays
The median forecast in the November 2-6 Reuters poll of 36 economists put annual consumer inflation at 5.93 per cent in October, up from 5.54 per cent in September. Forecasts ranged from 5.50 to 6.60 per cent, and nearly half of the economists polled expect inflation to be at or above 6 per cent. The official data is due on November 12.
Source: Reuters via EuropeSays
Food prices are doing the damage
Food prices, which account for nearly 40 per cent of India's consumer price index, have risen sharply in recent months after an uneven and deficient monsoon reduced supplies of key household staples. Onion prices have nearly doubled since the start of the year, while meat, milk and eggs have also become more expensive, and rising global food prices have raised the cost of imported edible oils, the poll report said.
Source: Reuters via EuropeSays
"Higher food inflation would still be the largest contributing factor to accelerating inflation," said Dhiraj Nim, senior economist at ANZ. "The southwest monsoon outturn was very uneven and deficient overall. In many parts of the country, conditions are drought-like … we could stay in an elevated inflation period for a long time." Rahul Bajoria, head of India and ASEAN economic research at BofA Securities, said meat, fish, oils and fats, fruits, vegetables and sugar were expected to report double-digit inflation.
Source: Reuters via EuropeSays
DBS Group Research independently expects a similar outcome, forecasting headline inflation of 6.0 per cent in October, up from 5.5 per cent in September, on higher food costs and a low base effect, with core inflation quickening to 4.5-4.6 per cent. "With inflation expected to test past the higher end of the RBI target range, we expect a second successive rate hike in December," DBS said.
Source: DBS Group Research via FXStreet
What it means for interest rates
Inflation has now remained above the RBI's 4 per cent medium-term target for four consecutive months. The RBI, which began its rate-hike cycle in October, expects inflation to average 5.2 per cent this financial year, and at its December policy meeting the central bank is widely expected to raise the repo rate for a second straight meeting to 5.75 per cent, according to last month's Reuters poll. Core inflation is expected at 4.45 per cent in October, while wholesale price inflation likely accelerated to 12.10 per cent from 11.39 per cent in September, the survey showed.
Source: Reuters via EuropeSays