Wednesday June 14 2017
India Wholesale Inflation At 5-Month Low Of 2.17% In May
Office of the Economic Adviser l Rida Husna | rida@tradingeconomics.com

Wholesale prices in India rose 2.17 percent from a year earlier in May of 2017, compared to a 3.85 percent gain in April and below market estimates of 3.11 percent. It was the lowest wholesale inflation since December 2016, as cost of manufactured products and fuel went up at slower paces while prices of primary articles declined.

In May, cost increased at a slower pace for: manufactured products (2.55 percent year-on-year from 2.66 percent in the prior month) and fuel and power (11.7 percent from 18.5 percent). In contrast, prices of primary articles fell 1.79 percent (from 1.82 percent).

On a monthly basis,  wholesale prices decreased by 0.4 percent.

 In May 2017, the government  revised the base year to 2011-12 from 2004-05, aiming to align it with the base year of other indicators like the GDP and the industrial production index.




Monday June 12 2017
India Inflation Rate Down To Record Low Of 2.18%
Joana Taborda | joana.taborda@tradingeconomics.com

Consumer prices in India increased 2.18 percent year-on-year in May of 2017, slowing from a 2.99 percent rise in April and well below market expectations of 2.6 percent. The inflation hit a new record low for the second month as food prices fell for the first time ever led by pulses and vegetables.

Year-on-year, cost of food and beverages edged down 0.22 percent (1.21 percent in April), provisional estimates showed. The food index alone declined 1.05 percent, compared to a 0.3 percent rise in April. Prices fell 13.4 percent for vegetables (-8.59 percent in April) and 19.45 percent for pulses (-15.94 percent) and slowed for fruits (1.4 percent from 3.78 percent). 

The inflation also eased for fuel and light (5.46 percent from 6.13 percent), clothing and footwear (4.41 percent from 4.58 percent) and housing (4.84 percent from 4.86 percent). 

The corresponding provisional inflation rates for rural and urban areas are 2.3 percent and 2.13 percent (3.02 percent and 3.03 percent respectively in April).




Wednesday June 07 2017
India Leaves Repo Rate At 6.25%
RBI | Joana Taborda | joana.taborda@tradingeconomics.com

The Reserve Bank of India held its benchmark repo rate at 6.25 percent on June 7th 2017 as widely expected, saying the decision is consistent with a neutral monetary policy stance. Policymakers added that the inflation outlook for the next months is uncertain and revised down its GVA growth forecasts for 2017-2018 by 10bps to 7.3 percent. The reverse repo rate was also left unchanged at 6 percent, following a 25bps cut in April; the bank rate at 6.5 percent and the cash rate at 4 percent.

Excerpts from the RBI Press Release:

The abrupt and significant retreat of inflation in April from the firming trajectory that was developing in February and March has raised several issues that have to be factored into the inflation projections. First, it needs to be assessed as to whether or not the unusually low momentum in the reading for April will endure. Second, the prices of pulses are clearly reeling under the impact of a supply glut caused by record output and imports. Policy interventions, including access to open trade, may be envisaged to arrest the slump in prices. Third, the accumulated downward adjustment in the prices of petrol and diesel effected in April has been largely reversed on June 1. Fourth, the easing of inflation excluding food and fuel may be transient in view of its underlying stickiness in a situation of rising rural wage growth and strong consumption demand. Thus, the April reading has imparted considerable uncertainty to the evolving inflation trajectory, especially for the near months. If the configurations evident in April are sustained, then absent policy interventions, headline inflation is projected in the range of 2.0-3.5 per cent in the first half of the year and 3.5-4.5 per cent in the second half. Risks are evenly balanced, although the spatial and temporal distribution of the monsoon and the government staying the course in effective food management will play a critical role in the evolution of risks. The risk of fiscal slippages, which, by and large, can entail inflationary spillovers, has risen with the announcements of large farm loan waivers. At the current juncture, global political and financial risks materialising into imported inflation and the disbursement of allowances under the 7th central pay commission’s award are upside risks. The date of implementation of the latter is still not announced and as such, it is not factored into the baseline projections. The implementation of the GST is not expected to have a material impact on overall inflation.

With the CSO’s provisional estimates for 2016-17, the projection of real GVA growth for 2017-18 has accordingly been revised 10 bps downwards from the April 2017 projection to 7.3 per cent, with risks evenly balanced. The continuing remonetisation should enable a pick-up in discretionary consumer spending, especially in cash-intensive segments of the economy. Furthermore, the reductions in banks’ lending rates post-demonetisation should support both consumption and investment demand of households and stress-free corporates. Moreover, Government spending continues to be robust, cushioning the impact of a slowdown in other constituents. The implementation of proposals in the Union Budget should crowd in private investment as the business environment improves with structural reforms, including the GST, the Insolvency and Bankruptcy Code, and the abolition of the Foreign Investment Promotion Board. Strengthening external demand will likely play a more decisive role in supporting the domestic economy. In addition, the new IIP broadens the recognition of industrial activity. On the downside, global political risks remain elevated and could materialise. Second, rising input costs and wage pressures may prove a drag on the profitability of firms, pulling down overall GVA growth. Third, the twin balance sheet problem - over-leveraged corporate sector and stressed banking sector - may delay the revival in private investment demand. 




Wednesday May 31 2017
India GDP Growth Unexpectedly Slows To 6.1% In Q1
Joana Taborda | joana.taborda@tradingeconomics.com

The Indian economy advanced 6.1 percent year-on-year in the first quarter of 2017, slowing sharply from a 7 percent expansion in the previous period and well below market expectations of 7.1 percent. It is the lowest growth rate since the last quarter of 2014, due to a slowdown in consumer spending and a drop in investment, following the demonetization program started in November of 2016 that removed 86 percent of India's currency in circulation. In addition, the government changed the GDP base year for 2011-2012 from 2004-2005. The same change was made earlier for industrial production and wholesale prices indexes, with adjustments in the weights of the different industries. Considering the April 2016-March 2017 period, the economy advanced 7.1 percent, in line with the official estimate but below 8 percent in the previous year.

Year-on-year, private spending rose 7.3 percent, slowing from an 11.1 percent gain in Q4 2016 and gross fixed capital formation shrank 2 percent, following a 1.6 percent gain in Q4. In addition, exports (10.3 percent compared to 4 percent in Q4) rose less than imports (11.9 percent compared to 2.1 percent in Q4). In contrast, government expenditure jumped 31.9 percent, higher than 20.9 percent in Q4.

GDP estimates for Q1 already include revised data for industrial production and wholesale prices. The government changed the base year for those indicators earlier in May, aiming to align them and make them more representative. Manufacturing has now a higher weight in the industrial production index (77.6 percent form 75.5 percent) while electricity production accounts for less (8 percent from 10.3 percent).

The Gross Value Added, that is, GDP excluding taxes, increased 5.6 percent year-on-year in Q1 of 2017, lower than 6.7 percent in Q4 2016. Construction shrank 3.7 percent (+3.4 percent in Q4 2016) and slowdowns were recorded for trade, hotels, transport and communication (6.5 percent from 8.3 percent); financial and real estate activities (2.2 percent from 3.3 percent); manufacturing (5.3 percent from 8.2 percent); agriculture (5.2 percent from 6.9 percent) and utilities (6.1 percent from 7.4 percent). In contrast, mining and quarrying (6.4 percent from 1.9 percent) and public administration and defence (17 percent from 10.3 percent) rose faster.




Friday May 12 2017
India Inflation Rate Falls To Record Low Of 2.99%
Yekaterina Guchshina | yekaterina@tradingeconomics.com

Consumer prices in India increased 2.99 percent year-on-year in April of 2017, following a 3.81 percent rise in March and well below market expectations of 3.5 percent. It is the lowest inflation rate since the series began in 2012, driven by a slowdown in food prices.

Year-on-year, cost of food and beverages rose 1.21 percent (2.54 percent in March), provisional estimates showed. The food index alone rose 0.31 percent compared to 1.93 percent in the previous month. Prices increased less for sugar (11.37 percent from 17.05 percent in March); meat and fish (1.9 percent from 2.96 percent) and fruits (3.78 percent from 9.35 percent) and fell more for pulses (-15.94 percent from -12.4 percent) and vegetables (-8.59 percent -7.24 percent).

Also, consumer prices rose at a slower pace for clothing and footwear (4.58 percent from 4.6 percent) and housing (4.86 percent from 4.96 percent). In contrast, inflation increased for fuel and light (6.13 percent from 5.56 percent).

The corresponding provisional inflation rates for rural and urban areas are 3.02 percent and 3.03 percent (3.75 percent and 3.88 percent respectively in March).


Friday May 12 2017
India Wholesale Inflation Below Expectations
Office of the Economic Adviser | Joana Taborda | joana.taborda@tradingeconomics.com

Wholesale prices in India rose 3.85 percent year-on-year in April of 2017, following a downwardly revised 5.29 percent gain in March and well below market estimates of 4.8 percent. It is the lowest wholesale inflation in four months after the government revised the base year.

Year-on-year, biggest upward pressure came from cost of manufactured products (2.66 percent), primary articles (1.82 percent) and fuel and power (18.52 percent). 

On a monthly basis, wholesale prices declined 0.18 percent.

The base year was revised to 2011-12 from 2004-05, aiming to align it with the base year of other indicators like the GDP and the industrial production index. It is the sixth revision in the base year since the series began, changing the basket of commodities and assigning new weights: the number of items in the basket went up to 697 from 676; 199 new items were added and 146 old removed; prices will not include indirect taxes; a new food index will be compiled to capture the rate of inflation in food items. In addition, seasonality of fruits and vegetables has been updated to account for more months as these are now available for longer duration.


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).