Let the rains come: India’s consumer prices fall more than expected

Retail inflation fell more than expected in March, India’s Statistics Ministry reported Tuesday, leaving room for a “monsoon effect” on monetary policy later this year.

Consumer prices in March rose 4.83% year over year, but posted a significant drop from February’s rise of 5.26%. The March number also fell below the 5% median forecast of 29 economist surveyed by Bloomberg.

Indian shoppers in retail store

Indian shoppers in retail store

Meanwhile, industrial output expanded 2% in February, a huge reversal from the 1.5% contraction January. The Bloomberg survey expected an 0.8% gain, while economists surveyed by Reuters had forecast 1% growth.

Consumer food prices rose 5.21% in March, down from February’s 5.3% increase. The decline was led by a 1.1% drop in fruit prices.

Health-care costs advanced 5.3%, while education and personal care both increased 5.7%.

Meanwhile, the country’s weather office predicted above normal rainfall, which could lead to more monetary easing. The July-September monsoon rains are crucial to keep prices in check as it accounts for about 80% of India’s total rainfall and waters more than 50% of farmland.

Reserve Bank of India Governor Raghuram Rajan, who cut interest rates last week, wants to limit consumer inflation to 5% by March 2017, reported Bloomberg. He said good rains could lead to further monetary easing.

“It’s a very pleasant surprise,” Saugata Bhattacharya, an economist at Axis Bank in Mumbai told Bloomberg. “The central bank would have space for another 25 basis point reduction” in the policy rate.



Categories: Asia Unhedged, India

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