Tuesday February 14 2017
India WPI Rises The Most In 30 Months In January
Office of the Economic Adviser l Rida Husna | rida@tradingeconomics.com

Indian wholesale prices rose 5.25 percent year-on-year in January of 2017, following a 3.39 percent gain in December while markets expected a 3.89 percent rise. It was the tenth straight month of increase and the highest since July 2014, driven by a faster increase in cost of manufactured product and a surge in cost of petrol while prices of food fell less than in the prior month.

In January, food prices fell 0.56 percent from a year earlier, following a 0.70 percent drop in the preceding month. Among food prices, vegetables recorded the largest drop (-32.32 percent), followed by onions (-28.86 percent) and potatoes (-0.20 percent). In contrast, cost increased for: wheat (+9.49 percent), pulses (6.21 percent), cereals (5.94 percent), milk (4.19 percent); egg, meat & fish (3.59 percent), fruits (3.58 percent) and rice (2.97 percent).

Cost of manufactured products increased by 3.99 percent, compared to a 3.67 percent rise in the previous month.

Petrol prices went up 18.14 percent year-on-year, following a 8.52 percent gain in December. Cost of diesel also increased by 31.10 percent,  compared to a 20.25 percent rise in a month earlier.

On a monthly basis, wholesale prices went up 1.0 percent, compared to a 0.2 percent fall in December.




Monday February 13 2017
India Consumer Inflation Down To Record Low Of 3.17%
Joana Taborda | joana.taborda@tradingeconomics.com

Consumer prices in India increased 3.17 percent year-on-year in January of 2017, easing from a 3.41 percent rise in December and below market expectations of 3.22 percent. It is the lowest inflation rate since the series began in 2012 due to a sharp slowdown in food prices.

Year-on-year, cost of food and beverages rose 1.29 percent (1.98 percent in December), provisional estimates showed. The food index alone edged up 0.53 percent compared to 1.37 percent in the previous month. Prices increased less for sugar (18.69 percent from 21.06 percent in December) and fell for pulses (-6.62 percent from -1.57 percent) and vegetables (-15.62 percent from -14.59 percent) while cost of fruit rose more (5.81 percent from 4.74 percent). 

Inflation also eased for clothing and footwear (4.71 percent from 4.88 percent) and fuel and light (3.42 percent from 3.77 percent) but accelerated slightly for housing (5.02 percent from 4.98 percent). 

The corresponding provisional inflation rates for rural and urban areas are 3.36 percent and 2.9 percent (3.83 percent and 2.9 percent respectively in November).

A year ago, the inflation rate was higher at 5.69 percent.

On a monthly basis, consumer prices edged down 0.08 percent.




Wednesday February 08 2017
India Keeps Key Rate At 6.25%
RBI | Joana Taborda | joana.taborda@tradingeconomics.com

The Reserve Bank of India left its key repo rate unchanged at 6.25 percent for the second time at its February 2017 meeting, compared to expectations of a 25bps cut. Policymakers decided to change the stance from accommodative to neutral while assessing the effects of demonetisation on inflation and growth. The reverse repo rate was also kept at 5.75 percent and the marginal standing facility and the bank rate at 6.75 percent.

Excerpts from RBI Press Release:

The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth.

The Committee is of the view that the persistence of inflation excluding food and fuel could set a floor on further downward movements in headline inflation and trigger secondorder effects. Nevertheless, headline CPI inflation in Q4 of 2016-17 is likely to be below 5 percent. Favourable base effects and lagged effects of demand compression may mute headline inflation in Q1 of 2017-18. Thereafter, it is expected to pick up momentum, especially as growth picks up and the output gap narrows. Moreover, base effects will reverse and turn adverse during Q3 and Q4 of 2017-18. Accordingly, inflation is projected in the range of 4.0 to 4.5 per cent in the first half of the financial year and in the range of 4.5 to 5.0 per cent in the second half with risks evenly balanced around this projected path. In this context, it is important to note three significant upside risks that impart some uncertainty to the baseline inflation path – the hardening profile of international crude prices; volatility in the exchange rate on account of global financial market developments, which could impart upside pressures to domestic inflation; and the fuller effects of the house rent allowances under the 7th Central Pay Commission (CPC) award which have not been factored in the baseline inflation path.The focus of the Union budget on growth revival without compromising on fiscal prudence should bode well for limiting upside risks to inflation.

GVA growth for 2016-17 is projected at 6.9 per cent with risks evenly balanced around it. Growth is expected to recover sharply in 2017-18 on account of several factors. First, discretionary consumer demand held back by demonetisation is expected to bounce back beginning in the closing months of 2016-17. Second, economic activity in cash-intensive sectors such as retail trade, hotels and restaurants, and transportation, as well as in the unorganised sector, is expected to be rapidly restored. Third, demonetisation-induced ease in bank funding conditions has led to a sharp improvement in transmission of past policy rate reductions into marginal cost-based lending rates (MCLRs), and in turn, to lending rates for healthy borrowers, which should spur a pick-up in both consumption and investment demand. Fourth, the emphasis in the Union Budget for 2017-18 on stepping up capital expenditure, and boosting the rural economy and affordable housing should contribute to growth. Accordingly, GVA growth for 2017-18 is projected at 7.4 per cent, with risks evenly balanced.

The Committee remains committed to bringing headline inflation closer to 4.0 percent on a durable basis and in a calibrated manner. This requires further significant decline in inflation expectations, especially since the services component of inflation that is sensitive to wage movements has been sticky. The committee decided to change the stance from accommodative to neutral while keeping the policy rate on hold to assess how the transitory effects of demonetisation on inflation and the output gap play out. 





Monday January 16 2017
India WPI Rises at Faster Pace in December
Office of the Economic Adviser | Rida Husna | rida@tradingeconomics.com

Indian wholesale prices rose 3.39 percent year-on-year in December of 2016, following a 3.15 percent gain in November while markets expected a 3.50 percent rise. It was the ninth straight month of increase, mainly due to rising cost of manufactured products and petrol while prices of food fell for the first time since August 2015.

In December, food prices fell 0.70 percent from a year earlier, following a 1.54 percent  rise in the preceding month. Among food prices, onion recorded the largest drop (-37.20 percent), followed by vegetables (-33.11 percent). In contrast, prices went up for: potatoes (+26.42 percent), pulses (+18.12 percent), wheat (+12.82 percent), cereals (+7.49 percent), rice (+4.38 percent), milk (+4.11 percent); egg, meat & fish (+2.73 percent) and  fruits (+0.04 percent).

Cost of manufactured products increased by 3.67 percent, compared to a 3.20 percent rise in the previous month.

Petrol prices went up 8.52 percent year-on-year, following a 5.54 percent gain in November. Cost of diesel also increased by 20.25 percent,  compared to a 19.36 percent rise in a month earlier.

On a monthly basis, wholesale prices declined by 0.2 percent, compared to a 0.1 percent increase in November.


Thursday January 12 2017
India Inflation Rate Lowest Since November 2014
Joana Taborda | joana.taborda@tradingeconomics.com

Consumer prices in India increased 3.41 percent year-on-year in December of 2016, following a 3.63 percent rise in November and below market expectations of 3.57 percent. It is the lowest inflation rate since November of 2014 as food prices cooled. The slowdown in inflation intensified in the last two months of 2016 after a demonetization campaign slumped currency in circulation, hurting consumption.

Year-on-year, cost of food and beverages rose 1.98 percent (2.56 percent in November), provisional estimates showed. The food index alone increased by 1.37 percent compared to 2.11 percent in the previous month. Prices increased less for sugar (+21.06 percent from +22.4 percent in November) and fell for pulses (-1.57 percent from +0.23 percent) and vegetables (-14.59 percent from -10.29 percent) while cost of fruit rose slightly more (4.74 percent from 4.6 percent). 

Inflation also eased for clothing and footwear (4.88 percent from 4.98 percent) and housing (4.98 percent from 5.04 percent) but accelerated for fuel and light (3.77 percent from 2.8 percent). 

The corresponding provisional inflation rates for rural and urban areas are 3.83 percent and 2.9 percent (4.13 percent and 3.13 percent respectively in November).

A year ago, the inflation rate was higher at 5.61 percent.

On a monthly basis, consumer prices fell 0.61 percent.


Wednesday December 14 2016
India WPI Rises the Least in 5 Months
Office of the Economic Adviser l Rida Husna | rida@tradingeconomics.com

Indian wholesale prices rose 3.15 percent year-on-year in November of 2016, following a 3.39 percent gain in October while markets expected a 3.10 percent rise. It was the eighth straight month of increase but the lowest figure since June, as a sharp slowdown in prices of food offset a faster increase in cost of manufactured products and petrol.

In November, food prices went up 1.54 percent from a year earlier, following a 4.34 percent  rise in the preceding month. Among food prices, potatoes recorded the highest rise (+36.97 percent), followed by pulses (+21.73 percent), wheat (+10.71 percent), cereals (+7.32 percent); egg, meat & fish (+5.82 percent), rice (+4.80 percent),  fruits (+2.45 percent) and milk (+4.19 percent). In contrast, prices declined for: onion (-51.51 percent) and vegetables (-24.10 percent).

Cost of manufactured products increased by 3.20 percent, compared to a 2.67 percent rise in the previous month.

Petrol prices went up 5.54 percent year-on-year, following a 3.57 percent gain in October. Cost of diesel also increased by 19.36 percent,  compared to a 19.32 percent rise in a month earlier.

On a monthly basis, wholesale prices rose 0.1 percent, the same as in the prior month.


Tuesday December 13 2016
India Inflation Rate At 2-Year Low Of 3.6% In November
Yekaterina Guchshina | yekaterina@tradingeconomics.com

Consumer prices in India increased 3.63 percent year-on-year in November of 2016, following 4.2 percent rise in October and well below market expectations of 3.9 percent. It was the lowest inflation rate since November 2014, as food inflation eased for the fourth straight month to 2.56 percent.

Year-on-year, cost of food and beverages rose 2.56 percent (+3.17 percent in October), provisional estimates showed. The food index alone increased by 2.11 percent compared to 3.32 percent in the previous month. Prices increased less for sugar (+22.4 percent from +23.62 percent in October), pulses (+0.23 percent from +4.11 percent) and cost of vegetables continued to fall (-10.29 percent from -5.74 percent).

Cost of clothing and footwear increased 4.98 percent year-on-year (from +5.24 percent in October); fuel and light rose 2.80 percent (from +2.81 percent) and housing prices went up 5.04 percent (from +5.15 percent)

The corresponding provisional inflation rates for rural and urban areas are 4.13 percent and 3.05 percent (4.78 percent and 3.54 percent respectively in October).

A year ago, the inflation rate was higher at 5.41 percent.

On a monthly basis, consumer prices fell 0.15 percent.


Wednesday December 07 2016
India Keeps Monetary Policy Unchanged at 6.25%
RBI l Rida Husna | rida@tradingeconomics.com

The Reserve Bank of India unexpectedly left its benchmark repo rate unchanged at a six-year low of 6.25 percent during the meeting held on December 7th despite wide expectations of a rate cut, following a severe cash crisis.

The central bank also hold its reverse repo rate steady at 5.75 percent and the marginal standing facility and the bank rate at 6.75 percent.

Excerpts from the statement by Governor Urjit Patel:

Liquidity conditions have undergone large shifts in Q3 so far. Surplus conditions in October and early November were overwhelmed by the impact of the withdrawal of SBNs from November 9. Currency in circulation plunged by `7.4 trillion up to December 2; consequently, net of replacements, deposits surged into the  banking system, leading to a massive increase in its excess reserves. The Reserve Bank scaled up its liquidity operations through variable rate reverse repo auctions of a wide range of tenors from overnight to 91 days, absorbing liquidity (net) of `5.2 trillion. The Reserve Bank allowed oil bonds issued by the Government as eligible securities under the LAF. From the fortnight beginning November 26, an incremental CRR of 100 per cent was applied on the increase in net demand and time liabilities (NDTL) between September 16, 2016 and November 11, 2016 as a temporary measure to drain excess liquidity from the system. From November 28, liquidity absorption fell back and the Reserve Bank undertook variable rate repo auctions of `3.3 trillion on November 28. As expected, money market conditions tightened thereafter and the weighted average call rate (WACR) traded near the upper bound of the LAF corridor on that day before dropping back to the policy repo rate on November 30. All other rates in the system firmed up in sympathy, with term premia getting restored gradually. Through this episode, active liquidity management prevented the WACR from falling even to the fixed rate reverse repo rate, the lower bound of the LAF corridor. Liquidity management was bolstered by an increase in the limit on securities under the market stabilisation scheme (MSS) from `0.2 trillion to `6 trillion on November 29. There have been two issuances of cash management bills under MSS for `1.4 trillion by December 6, 2016.

In the external sector, India’s merchandise exports rebounded in September and October. The return to positive territory was supported by a pick-up in both POL and non-POL exports. 

CPI inflation excluding food and fuel has been resistant to downward impulses and could set a floor to headline inflation. With the OPEC’s agreement to cut production, crude prices may firm up in the coming months. Global developments, especially as financial markets factor in the futur estance of US monetary and fiscal policy, could impart volatility to the exchange rate thereby feeding into inflation.

While supply disruptions in the backwash of currency replacement may drag down growth this year, it is important to analyse more information and experience before judging their full effects and their persistence – short-term developments that influence the outlook disproportionately warrant caution with respect to setting the monetary policy stance. If the impact is transient as widely expected, growth should rebound strongly. Turning to inflation, food prices other than vegetables are exhibiting sustained firmness and a pick-up in momentum. Given these indicators of underlying inflation, it is appropriate to look through the transitory but unclear effects of the withdrawal of SBNs while setting the monetary policy stance. On balance, therefore, it is prudent to wait and watch how these factors play out and impinge upon the outlook. Accordingly, the policy repo rate has been kept on hold in this review, while retaining an accommodative policy stance. 




Wednesday November 30 2016
Indian Economy Expands 7.3% YoY In Q3
Yekaterina Guchshina | yekaterina@tradingeconomics.com

India's gross domestic product advanced 7.3 percent year-on-year in the third quarter of 2016, following 7.1 percent expansion in the previous period and missing market expectations of 7.5 percent growth. Private consumption expanded at a faster pace while government spending slowed down and fixed investment dropped further.

Private consumption growth accelerated to 7.6 percent from 6.7 percent in the previous quarter while government spending rose at a slower 15.2 percent (+18.8 percent in Q2). Gross fixed capital formation shrank at a faster 5.6 percent, following a 3.1 percent contraction in the previous period.

Exports increased 0.3 percent, following a 3.2 percent growth in the second quarter; while imports declined 9 percent after falling 5.8 percent in the precedent period.

On the production side, the gross value added for public administration, defence and other services expanded the most (+12.5 percent vs +12.3 percent in Q2), followed by: financial, insurance, real estate and professional services (+8.2 percent vs +9.4 percent); manufacturing (+7.1 percent vs +9.1 percent); trade, hotel, transport, communication and services related to broadcasting (+7.1 percent vs +8.1 percent); electricity, gas, water supply and other utility services (+3.5 percent vs +9.4 percent); agriculture, forestry and fishery (+3.3 percent vs +1.8 percent) and construction (+3.5 percent vs +1.5 percent). By contrast, mining and quarrying contracted 1.5 percent (-0.4 percent in Q2).




Tuesday November 15 2016
India Inflation Rate Falls to 14-Month Low of 4.2%
Joana Taborda | joana.taborda@tradingeconomics.com

Consumer prices in India increased 4.2 percent year-on-year in October of 2016, easing from an upwardly revised 4.39 percent rise in September, reaching a new low since August last year. Figures came in line with market expectations as food inflation eased for the third straight month to 3.32 percent.

Year-on-year, cost of food and beverages rose 3.17 percent (+4.12 percent in September), provisional estimates showed. The food index alone increased by 3.32 percent compared to 3.96 percent in the previous month. Upward pressure came from sugar (+23.62 percent from +25.77 percent in September), pulses (+4.11 percent from +14.33 percent) and fruits (+4.42 percent from +6.07 percent); while cost of vegetables continued to fall (-5.74 percent from -7.21 percent).

Cost of clothing and footwear increased 5.24 percent year-on-year (from +5.19 percent in September); fuel and light rose 2.81 percent (from +3.07 percent); and housing prices went up 5.15 percent (from +5.18 percent).

The corresponding provisional inflation rates for rural and urban areas are 4.78 percent and 3.54 percent (5.04 percent and 3.64 percent respectively in September).

A year ago, the inflation rate was higher at 5 percent.

On a monthly basis, consumer prices rose 0.38 percent.