Let the rains come: India’s consumer prices fall more than expected
Retail inflation fell more than expected in March, India’s Statistics Ministry reported Tuesday, leaving room for a “monsoon effect” on monetary policy later this year.
Consumer prices in March rose 4.83% year over year, but posted a significant drop from February’s rise of 5.26%. The March number also fell below the 5% median forecast of 29 economist surveyed by Bloomberg.
Meanwhile, industrial output expanded 2% in February, a huge reversal from the 1.5% contraction January. The Bloomberg survey expected an 0.8% gain, while economists surveyed by Reuters had forecast 1% growth.
Consumer food prices rose 5.21% in March, down from February’s 5.3% increase. The decline was led by a 1.1% drop in fruit prices.
Health-care costs advanced 5.3%, while education and personal care both increased 5.7%.
Meanwhile, the country’s weather office predicted above normal rainfall, which could lead to more monetary easing. The July-September monsoon rains are crucial to keep prices in check as it accounts for about 80% of India’s total rainfall and waters more than 50% of farmland.
Reserve Bank of India Governor Raghuram Rajan, who cut interest rates last week, wants to limit consumer inflation to 5% by March 2017, reported Bloomberg. He said good rains could lead to further monetary easing.
“It’s a very pleasant surprise,” Saugata Bhattacharya, an economist at Axis Bank in Mumbai told Bloomberg. “The central bank would have space for another 25 basis point reduction” in the policy rate.