India’s inflation slowed in July, an easing that may be insufficient for the central bank to change its policy of boosting interest rates to contain prices.
The wholesale-price index rose 9.22 percent from a year earlier after a 9.44 percent jump in June, the commerce ministry said in New Delhi today. The median of 22 estimates in a Bloomberg News survey was for a 9.2 percent increase.
Price gains in India are the fastest among the BRICS nations that include Brazil, Russia, China and South Africa, and policy makers have raised borrowing costs 11 times since the start of 2010. Central bank Governor Duvvuri Subbarao said Aug. 12 that it’s “too early to say” whether there would be a change in stance amid threats to expansion posed by Europe’s debt crisis and a faltering U.S. recovery.
“It is only when they see some meaningful moderation in inflation that they will let their guards loose,” Devika Mehndiratta, a Singapore-based economist at Credit Suisse Group AG, said before the report. “As things stand now, they would be focused on inflation.”
She expects the Reserve Bank of India to increase its repurchase rate by quarter of a percentage point to 8.25 percent in the Sept. 16 policy announcement.
India’s 10-year government bond yields were little changed at 8.33 percent as of 11:53 a.m. in Mumbai, from before the report was released. The Bombay Stock Exchange Sensitive Index rose 0.5 percent and the rupee gained 0.2 percent to 45.24 against the dollar.
Spending Power
Inflation erodes spending power, particularly in a nation like India where the World Bankestimates three-quarters of the population live on less than $2 a day.
By comparison, consumer prices rose 6.9 percent in Brazil, 9 percent in Russia, 6.5 percent in China and 5 percent in South Africa.
India’s Prime Minister Manmohan Singh said yesterday taming inflation in the South Asian nation would be his coalition’s “top-most” priority.
The July inflation data includes the impact of higher diesel and cooking gas costs announced by India on June 24.
Indian companies continue to have the power to pass on higher prices to consumers and there is a need to curb inflation expectations, Subbarao said last week. The Reserve Bank on July 26 maintained its growth forecast of 8 percent for the current fiscal year ending March 31. The economy expanded 8.5 percent the previous year.
Coal India
Coal India Ltd. (COAL), the world’s largest producer of the fuel, posted a 63 percent increase in profit during the April-June quarter from a year earlier after it increased prices and demand rose. Steel output by companies including Tata Steel Ltd. (TATA) climbed 12.5 percent in June from a year ago, compared with a 6.1 percent gain in May, according to the commerce ministry.
“Overall, there are reasons for the RBI to tighten, but a wait-and-see approach cannot be ruled out if the global backdrop worsens,” Rajeev Malik, a senior economist at CLSA Asia Pacific Markets in Singapore, said in an e-mailed note before the inflation report today.
Central bankers in most advanced nations are racing to shield their economies from fiscal tightening and lopsided currency swings that threaten a new global recession.
The European debt crisis has shown no sign of abating with investors’ concerns rattling France last week and the European Central Bank starting to buy Spanish and Italian debt.
Federal Reserve Chairman Ben S. Bernanke and his policy- making colleagues pledged on Aug. 9 to hold the main interest rate at a record low near zero at least until mid-2013, saying economic growth is “considerably slower” than anticipated.
“A pause, even if it is announced, on Sept. 16 should not be mistakenly assumed to indicate that the RBI is necessarily done with its tight money policy,” CLSA’s Malik said. “Barring a significant global crisis that also adversely impacts domestic liquidity, the RBI will probably stay on hold for some time before shifting to an easier stance.”
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