BUSINESS

India's Inflation Breaches Target, Narrowing Room For Rate Cuts

Consumer Prices Rose 6.07% in July

12/08/2016 7:03 PM IST | Updated 12/08/2016 7:07 PM IST
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Abhishek Chinnappa / Reuters

India's inflation accelerated more than estimated, narrowing room for monetary easing as investors wait to see who will replace hawkish central bank Governor Raghuram Rajan next month.

Key Points

Consumer prices rose 6.07 percent in July from a year earlier, the Statistics Ministry said in a statement in New Delhi on Friday This was faster than the 5.9 percent median estimate in a Bloomberg survey of 35 economists It also breaches the nation's 2 percent to 6 percent target range for CPI Industrial production gained 2.1 percent in June, compared with a 1.5 percent increase forecast in a separate survey

Big Picture

An acceleration in Asia's second fastest inflation makes it harder for the incoming governor to retain Rajan's "accommodative" monetary stance without stoking prices further. Rajan, whose term ends on Sept. 4, this week kept the benchmark repurchase rate at a five-year low of 6.5 percent and flagged upward risks to his consumer-price target of 5 percent by March 2017.

Economist Takeaways

"Prospects for monetary policy depend in part on who is chosen to succeed Governor Raghuram Rajan at the RBI but, for now, we believe the easing cycle is over," said Shilan Shah, India economist at Capital Economics in Singapore

The Details

The consumer food price index rose 8.35 percent in July after a 7.79 percent increase the previous month The surge was led by a 27.5 percent jump in the cost of pulses, 22 percent in sugar and confectionery, and 14 percent in vegetable prices Housing rose 5.4 percent, health services 4.5 percent, education 5.1 percent and personal care jumped 7.3 percent

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