New Delhi: Rising food prices resulted in the increase of inflation in India more than expected in March, reversing a slowdown and leaving the RBI with less room to support the economy amid fresh signs of slowing growth.
The pick-up in inflation, coupled with a slump in industrial output and merchandise exports and the risk of less-than-normal monsoon rains this summer, also calls into question assumptions that the worst is over for Asia's third-largest economy.
Higher prices for fruit, vegetables and milk pushed the annual retail inflation rate up to 8.31 percent last month from a 25-month low of 8.03 per cent in February, data from the ministry of statistics showed on Tuesday. Annual wholesale price inflation, long regarded as India's main inflation measure, hit a three-month high of 5.70 per cent in March on higher food and fuel prices.
"There are a number of reasons to think that inflation will ease only slowly over the rest of the year, ruling out any rate cuts in the near term," said Miguel Chanco, India Economist at Capital Economics.
The Central Bank considers price stability as a necessary condition for economic revival and aims to bring down retail inflation to 6 percent by January 2016.
The Reserve Bank of India left its policy repo rate unchanged at 8 percent this month after raising lending rates three times since last September."Given the RBI's increased commitment to taming inflation since Raghuram Rajan took over as governor, we expect interest rates to be kept on hold for most of the year," added Chanco.
India has been battling a prolonged spell of high inflation and low growth. While economic growth has almost halved to below 5 percent for the past two years, the worst slowdown for the South Asian nation since the 1980s, retail inflation has been averaging around 10 per cent.
A sharper-than-expected cooling in vegetable prices in the past three months had raised hopes of breaking out of that spell. But recent unseasonal hail and heavy rains in parts of the country have damaged crops and driven up food prices again.
Food prices for consumers last month rose 9.10 per cent from a year earlier, faster than February's provisional 8.57 per cent rise. Wholesale prices for food items, meanwhile, jumped 9.90 percent on year in March compared with an 8.12 per cent rise a month ago.
A continuing slump in investment and consumer demand resulted in a surprise 1.9 per cent annual contraction in industrial output in February. Exports fell for a second straight month in March, widening the trade deficit to a five-month high.
