Inflation likely crept up slightly to a six-month high in April, driven mainly by food prices, a Reuters poll found, although holding below the Reserve Bank of India’s medium-term target of 4 percent for the ninth straight month. If true, that would support expectations for the central bank to keep policy on hold through to the end of next year after cutting interest rates twice in a row, in February and April, ahead of national elections.
The latest Reuters poll of over 40 economists, conducted May 3-9, showed India retail inflation likely rose to 2.97 percent last month from 2.86 percent in March.
The data is due May 13. Forecasts ranged between 2.68 and 3.56 percent, with almost three-quarters pegging it at or below 3 percent. “In continuation of the previous month’s trend we see further pickup in food prices and moderation in core,” noted economists at Citi. “While Brent prices had spiked in April – there was little pass through to pump level prices, probably due to ongoing elections.
Indeed, while inflation is tame now, economists say that rising oil prices will eventually push inflation up and could pose a challenge for whatever government is formed after India’s national election is completed later this month.
Crude oil prices surged last month, driven by a cutback in supply by the Organisation of Petroleum Exporting Countries (OPEC) and sanctions imposed on Iran and Venezuela by the United States. The expected slight rise in April is likely to come in part from the cost of transporting food, according to Prakash Sakpal, Asia economist at ING, although not everyone agrees.
Fuel costs tend to lag the price of crude, and so economists expect upward pressure in future months in any case. “I think in the second half (of the year) inflation will start picking up…and then we will see the RBI losing (room) to aggressively ease,” said Vishnu Varathan, an economist at Mizuho. “Having said that, the growth cycle is such that the RBI could still squeeze through one more rate cut on the premise of further downside risks to growth.”