A smaller-than-expected surge in India’s food prices sent inflation to a multi-year low, data showed on Tuesday, giving a boost to the new government that has promised to pull the economy out of its malaise.
Food prices have been at the core of India’s struggle in the past two years to beat low growth and high inflation, and Prime Minister Narendra Modi scored the biggest electoral mandate for 30 years in May on an economic reform ticket.
Tuesday’s figures showed that lower vegetable prices helped bring down wholesale food inflation to a near three-year low of 3.52% in September, and fuel inflation hit a near five-year low of 1.33% on falling global crude prices.
The wholesale price index rose an annual 2.38% last month, its slowest since October 2009, compared with the 3.3% forecast by economists in a Reuters poll. Benchmark 10-year bond yields hit a 13-month peak as bond traders priced in more aggressive monetary easing next year.
On Monday, consumer price inflation, which the central bank tracks to set policy lending rates, dropped sharply to 6.46% in September, the lowest since the latest data series started in January 2012.
“It is heartening to note that we have been able to bring food inflation under control,” finance minister, Arun Jaitley, said in a statement. “We are confident that soon we will be achieving a low and stable inflation rate.”
But economists say Modi’s adminstration has yet to lay out a credible inflation strategy, beyond short-term improvisation, and India still urgently needs to fix a supply chain controlled by middlemen and boost farm productivity to prevent recurring food price shocks.
Risk factors
As well as a prospective pick-up in domestic consumption stoking price pressures, patchy monsoon rains and floods in parts of India this year are likely to keep food inflation high.
Economists say the real picture of inflation will emerge only after November when a favourable base effect fades out and the impact of a sub-normal monsoon rains on summer-sown crops are more visible.
“We will see the lowest reading for inflation in November due to the statistical base effect,” Bank of Baroda chief economist, Rupa Rege Nitsure, said.
“So it needs to be seen post-December how inflation pans out as the Reserve Bank of India (RBI) wants inflation to come down on durable basis.”