India’s retail inflation likely above 7pc again

11 November, 2020 12:00 AM printer

BENGALURU: India's retail inflation likely stayed above 7percent for a second straight month in October as supply distortions led to a surge in vegetable prices, especially of onions, a Reuters poll showed, lowering the chances of further interest rate cuts.

Disruption from by the coronavirus pandemic and excessive rainfall in states such as Maharashtra, Karnataka and Andhra Pradesh have damaged and delayed the harvesting of onions - a key ingredient in Indian kitchens - alongside other vegetables.

A Reuters poll of 50 economists conducted from Nov. 4-9 predicted consumer prices rose 7.30 percent last month from a year earlier, a touch lower than September's 7.34 percent rate, report agencies.

If realised, it would be above the top end of the Reserve Bank of India's medium-term target range of 2percent-6percent for the seventh consecutive month, a streak not seen since August 2014.

"India's recent inflation trajectory is driven by a confluence of seasonal supply-side drivers lifting the food segment, magnified by COVID-19-led disruptions, hindering inter-state transfer as well as provision of general services," said Radhika Rao, economist at DBS Bank.

"Price and tax rigidity in commodities has also added to the boost."

Demand remains weak in Asia's third-largest economy, which contracted at the sharpest pace on record of 23.9percent in the April-June quarter, as the ongoing pandemic left millions unemployed and resulted in massive pay cuts. India has the second-highest total infections in the world at more than 8.5 million cases.

The poll also predicted industrial output in September dropped 2.0percent from a year earlier, the seventh consecutive month of falls and its longest streak of decline since June 2009, as infrastructure output, which accounts for about 40percent of total industrial production, contracted 0.8percent.

Still, the RBI, which has eased its key repo rate by 115 basis points since March, was widely expected to wait until February before cutting the rate again amid worries over higher inflation.

"We see a space for a rate cut in the February policy meeting as the RBI leans towards stimulating growth and acts at the first window it gets when inflation drops within its target range," said Sakshi Gupta, senior economist at HDFC Bank.