India Inflation Breaches Central Bank Threshold in January

(Bloomberg) -- India’s retail inflation breached the central bank’s 6% tolerance limit for the first time in seven months, an increase that is unlikely to prompt the growth-focused central bank to raise interest rates.

Consumer prices rose 6.01% in January from a year earlier, the Statistics Ministry said in a statement on Monday. That’s nearly in line with the 6% median estimate in a Bloomberg survey of 40 economists and the highest reading since June.

“The inflation reading came in line with our expectations. RBI too was expecting the reading to be around the upper limit,” said Upasna Bhardwaj, an economist with Kotak Mahindra Bank Ltd. “The trajectory is expected to have peaked out in January and hence we do not expect any change to policy stance.”

Inflation breaching the upper end of the Reserve Bank of India’s 2%-6% target band is already likely factored in by the central bank, which expects price pressures to peak in the quarter ending March. Policy makers last week kept borrowing costs at a record-low to support the economy’s recovery from the pandemic.

Indian Central Bank’s Inflation Projections are Robust: Das

Digging Deeper

• The gains were driven by rising cost of food and fuel. Food price inflation accelerated 5.43%, while clothing and footwear prices rose 8.84% and fuel and light prices rose 9.32%
• A surge in oil prices and upbeat demand following fewer pandemic curbs are seen adding to price pressures, leading many economists to question the RBI’s dovish inflation projection
• The RBI sees retail inflation at 5.3% this year, and easing to 4.5% level next fiscal beginning April, which is lower than the 5% consensus estimate in a Bloomberg survey

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