Monday April 17 2017
India WPI Rises Less Than Expected In March
Office of the Economic Adviser | Rida Husna | rida@tradingeconomics.com

Indian wholesale prices rose 5.70 percent year-on-year in March of 2017, following a 6.55 percent gain in February and below market estimates of a 5.98 percent rise. A slowdown in cost of manufactured products offset a faster increase in cost of food and petrol.

In March, food prices went up 3.12 percent from a year earlier, following a 2.69 percent gain in the preceding month. Among food, prices of fruits recorded the highest increase (7.62 percent), followed by vegetables (5.70 percent), rice (5.07 percent), cereals (4.97 percent), wheat (4.65 percent), milk (3.23 percent) and egg, meat & fish (3.12 percent). In contrast, cost fell for: potatoes (-17.07 percent), onions (-10.78 percent) and pulses (-6.09 percent). 

Cost of manufactured products increased by 2.99 percent, compared to a 3.66 percent rise in the previous month.

Petrol prices rose 20.56 percent year-on-year, following a 16.72 percent gain in February. Cost of diesel also increased by 26.24 percent,  compared to a 33.14 percent rise in a month earlier.

On a monthly basis, wholesale prices fell 0.1 percent, compared to a 0.5 percent rise in the prior month.




Wednesday April 12 2017
India Inflation Rate Rises Less Than Forecasts
Joana Taborda | joana.taborda@tradingeconomics.com

Consumer prices in India increased 3.81 percent year-on-year in March of 2017, following a 3.65 percent rise in February and below market expectations of 3.98 percent. Food inflation slowed to 1.93 percent from 2.01 percent.

Year-on-year, cost of food and beverages rose 2.54 percent (2.46 percent in February), provisional estimates showed. The food index alone rose 1.93 percent compared to 2.01 percent in the previous month. Prices increased less for sugar (17.05 percent from 18.83 percent in February) and meat and fish (2.96 percent from 3.5 percent) and fell more for pulses (-12.4 percent from -9 percent). In contrast, prices rose faster for fruits (9.35 percent from 8.33 percent) and fell less for vegetables (-7.24 percent -8.29 percent).

Inflation also increased for fuel and light (5.56 percent from 3.9 percent) and clothing and footwear (4.6 percent from 4.38 percent) but was nearly flat for housing (4.96 percent from 4.9 percent).

The corresponding provisional inflation rates for rural and urban areas are 3.75 percent and 3.88 percent (3.67 percent and 3.55 percent respectively in February).




Thursday April 06 2017
India Holds Repo Rate At 6.25%
RBI l Joana Ferreira | joana.ferreira@tradingeconomics.com

The Reserve Bank of India held its benchmark repo rate at a six-year low of 6.25 percent on April 6th, as widely expected, and raised its reverse repo rate by 25bps to 6 percent, saying there are upside risks to the inflation outlook amid an uncertain global economic environment. Annual inflation rose to 3.65 percent in February 2017 from a record low of 3.17 percent in the previous month. For 2017-18, policymakers expect inflation to average 4.5 percent in the first half of the year and 5 percent in the second half.

Excerpts from RBI Press Release:

Since the February bi-monthly monetary policy statement, inflation has been quiescent. Headline CPI inflation is set to undershoot the target of 5.0 percent for Q4 of 2016-17 in view of the sub-4 percent readings for January and February. For 2017-18, inflation is projected to average 4.5 percent in the first half of the year and 5 percent in the second half.

Risks are evenly balanced around the inflation trajectory at the current juncture. There are upside risks to the baseline projection. The main one stems from the uncertainty surrounding the outcome of the south west monsoon in view of the rising probability of an El Niño event around July-August, and its implications for food inflation. Proactive supply management will play a critical role in staving off pressures on headline inflation. A prominent risk could emanate from managing the implementation of the allowances recommended by the 7th CPC. In case the increase in house rent allowance as recommended by the 7th CPC is awarded, it will push up the baseline trajectory by an estimated 100-150 basis points over a period of 12-18 months, with this initial statistical impact on the CPI followed up by second-order effects. Another upside risk arises from the one-off effects of the GST. The general government deficit, which is high by international comparison, poses yet another risk for the path of inflation, which is likely to be exacerbated by farm loan waivers. Recent global developments entail a reflation risk which may lift commodity prices further and pass through into domestic inflation. Moreover, geopolitical risks may induce global financial market volatility with attendant spillovers. On the downside, international crude prices have been easing recently and their pass-through to domestic prices of petroleum products should alleviate pressure on headline inflation. Also, stepped-up procurement operations in the wake of the record production of foodgrains will rebuild buffer stocks and mitigate food price stress, if it materialises.

GVA growth is projected to strengthen to 7.4 percent in 2017-18 from 6.7 percent in 2016-17, with risks evenly balanced. Several favourable domestic factors are expected to drive this acceleration. First, the pace of remonetisation will continue to trigger a rebound in discretionary consumer spending. Second, significant improvement in transmission of past policy rate reductions into banks’ lending rates post demonetisation should help encourage both consumption and investment demand of healthy corporations. Third, various proposals in the Union Budget should stimulate capital expenditure, rural demand, and social and physical infrastructure all of which would invigorate economic activity. Fourth, the imminent materialisation of structural reforms in the form of the roll-out of the GST, the institution of the Insolvency and Bankruptcy Code, and the abolition of the Foreign Investment Promotion Board will boost investor confidence and bring in efficiency gains. Fifth, the upsurge in initial public offerings in the primary capital market augurs well for investment and growth.

The global environment is improving, with global output and trade projected by multilateral agencies to gather momentum in 2017. Accordingly, external demand should support domestic growth. Downside risks to the projected growth path stem from the outturn of the south west monsoon; ebbing consumer optimism on the outlook for income, the general economic situation and employment as polled in the March 2017 round of the Reserve Bank’s consumer confidence survey; and, commodity prices, other than crude, hardening further.




Tuesday March 14 2017
India Consumer Inflation Rises More Than Expected
Joana Taborda | joana.taborda@tradingeconomics.com

Consumer prices in India increased 3.65 percent year-on-year in February of 2017, following a record low rise of 3.17 percent in January and higher than market expectations of 3.58 percent. Food inflation accelerated to 2.01 percent from 0.53 percent.

Year-on-year, cost of food and beverages rose 2.46 percent (1.29 percent in January), provisional estimates showed. The food index alone rose 2.01 percent compared to 0.53 percent in the previous month. Prices increased more for sugar (18.83 percent from 18.69 percent in January) and fruit (8.33 percent compared to 5.81 percent) and fell less for vegetables (-8.29 percent compared to -15.62 percent). 

Inflation also increased for fuel and light (3.9 percent from 3.42 percent) but slowed slightly for housing (4.9 percent from 5.02 percent) and clothing and footwear (4.38 percent from 4.71 percent).

The corresponding provisional inflation rates for rural and urban areas are 3.67 percent and 3.55 percent (3.36 percent and 2.9 percent respectively in January).


Tuesday March 14 2017
India WPI Rises The Most In Over 3 Years
Office of the Economic Adviser | Rida Husna | rida@tradingeconomics.com

Indian wholesale prices rose 6.55 percent year-on-year in February of 2017, following a 5.25 percent gain in January while markets expected a 5.90 percent rise. It was the eleventh straight month of increase and the highest since November 2013, driven by a surge in prices of food while cost of manufactured products and petrol rose further.

In February, food prices went up 2.69 percent from a year earlier, following a 0.56 percent drop in the preceding month. Among food prices, wheat recorded the largest increase (8.36 percent), followed by fruits (7.14 percent), cereals (6.09 percent), rice (4.40 percent) and milk (3.93 percent) and egg, meat & fish (3.79 percent). In contrast, cost fell for: onions (-18.85 percent), potatoes (-8.84 percent), vegetables (-8.05 percent) and pulses (-0.79 percent). 

Cost of manufactured products increased by 3.66 percent, compared to a 3.99 percent rise in the previous month.

Petrol prices rose 16.72 percent year-on-year, following a 18.14 percent gain in January. Cost of diesel also increased by 33.14 percent,  compared to a 31.10 percent rise in a month earlier.

 On a monthly basis, wholesale prices went up 0.5 percent, compared to a 1.0 percent rise in the prior month.


Thursday March 02 2017
India GDP Growth Beats Expectations in Q4
Joana Taborda | joana.taborda@tradingeconomics.com

The Indian economy advanced 7 percent year-on-year in the last three months of 2016, slowing from an upwardly revised 7.4 percent rise in the previous quarter but beating expectations of a 6.4 percent growth. The expansion was mainly driven by a surge public spending and agriculture. The GDP is expected to grow 7.1 percent in the fiscal year ending in March 2017.

Private spending rose 10.1 percent, faster than a 5.1 percent increase in the previous quarter. Government spending went up 19.9 percent, higher than 15.2 percent in the previous quarter. Gross fixed capital formation expanded 3.5 percent, recovering from a 5.3 percent contraction in the previous period. Exports advanced 3.4 percent, rebounding from a 0.9 percent drop in the previous quarter. Imports rose 4.5 percent, following a 7.4 percent fall in the previous period. 

On the production side, the gross value added for public administration, defence and other services expanded the most (11.9 percent compared to 11 percent in Q3), followed by manufacturing (8.3 percent compared to 6.9 percent in Q3); mining and quarrying (7.5 percent compared to -1.3 percent in Q3); trade, hotels, transport, communication and services related to broadcasting (7.2 percent compared to 6.9 percent in Q3); utilities (6.8 percent compared to 3.8 percent in Q3); agriculture (6 percent compared to 3.8 percent in Q3); financial, insurance, real estate and professional services (3.1 percent compared to 7.6 percent) and construction (2.7 percent compared to 3.4 percent in Q3).

The data suggests that the economy was only slightly touched by demonetarization, while the economists had been predicting the gdp growth would go down much more. This can be explained by:
1. downward revision of the growth rate in the last quarter of 2015 (from 7.2 percent to 6.5 percent)
2. 40 to 50 per cent of the economy is in the informal sector and operates almost exclusively in cash while early growth estimates rely on the results of large, formal-sector companies
3.  Indian companies may have attempted to explain illicit cash holdings by stocking up on inventory or over-reporting sales. After all manufacturing growth accelerated sharply to 8 percent from 5.6 percent in the previous quarter.
Lastly, the government claim that private spending rose even more than in the quarter before the cash crunch does not add up to other indicators pointing to the sharp slowdown in both rural and urban consumption.






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.