Indian inflation falls below forecasts

Consumer prices rose 3.31 per cent in October from a year earlier, allowing room for the central bank to hold interest rates when it reviews monetary policy next month

New 100 Indian rupee notes. Inflation fell more than expected last month. Reuters

India’s consumer price inflation eased to a 13-month low as food prices remained subdued, allowing room for the central bank to hold interest rates when it reviews monetary policy next month.

Consumer prices rose 3.31 per cent in October from a year earlier, the Statistics Ministry said. That compares with a 3.77 per cent gain in September and an estimate of 3.6 per cent in a Bloomberg survey of 33 economists.

The weaker than expected inflation adds pressure on the monetary policy committee to stand pat for a second straight meeting after they raised rates to the highest level in two years in August. That increase has added to tighter financial conditions amid liquidity moving from surplus to deficit in the past few months, with the Bloomberg Economics India Banking Liquidity Index showing a nearly 1 trillion rupee shortfall in the banking system.

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“Given the ongoing credit crunch which is hitting demand in small and medium sectors, the stabilization in crude prices and the rupee, I expect both inflation as well as industrial growth to become softer in the coming months,” said Rupa Rege Nitsure, chief economist at L&T Finance in Mumbai. “We are not expecting any rate hikes.”

Food and beverage prices fell 0.14 per cent; clothing and footwear prices gained 3.55 per cent, fuel and lighting prices rose 8.55 per cent while housing prices jumped 6.55 per cent.

On October 5, Reserve Bank of India Governor Urjit Patel said a cut was off the table and interest rates would either be on hold or move up.

Core inflation - which strips out volatile food and fuel prices - was at 6.1 per cent in October, according to Aditi Nayar, principal economist at ICRA.

India’s factory output rose 4.5 per cent in September, slower than the revised 4.67 per cent in August, data showed Monday.

Figures due Wednesday will show India’s wholesale price inflation rate was probably 4.93 per cent in October. Wholesale prices gained 5.13 per cent in September.