India’s inflation beat estimates in January, breaching the top-end of the central bank’s target for the first time in three months, validating the central bank’s worries on persistent price pressures.
(Bloomberg) — India’s inflation beat estimates in January, breaching the top-end of the central bank’s target for the first time in three months, validating the central bank’s worries on persistent price pressures.
The consumer price index rose 6.52% from a year earlier, according to data released by the Statistics Ministry on Monday. That’s higher than the 6% median estimate in a Bloomberg survey and compares with a 5.72% gain in December.
The surprise jump in inflation will pile pressure on the central bank to keep tightening interest rates, and damp any bond market expectations of a dovish pivot anytime soon. India’s central bank last week raised the benchmark rate a sixth time since May to 6.50% and kept the door open for further hikes. RBI will next meet in April to set the key rate.
“Today’s data validates RBI’s hawkish rhetoric,” said Rahul Bajoria, Chief Economist of Barclays Bank Plc, adding that elevated food costs stoked prices.
Food prices, which make up nearly half the index, increased 5.94%, while ‘fuel and light’ rose 10.84%. Clothing and footwear costs went up 9.08% and housing prices picked up 4.62%, keeping core prices elevated. Core inflation, which strips out volatile food and fuel costs, stayed above the 6% mark for the 16th month in a row.
“We are far from the ‘durable disinflation’ process,” said Madhavi Arora, lead economist at Emkay Global. “This print will further strengthen RBI’s view that stickiness of core inflation could unmoor inflation expectations and lead to second-round effects in the medium term.”
Central banks from Australia to Philippines also warned of sticky inflation in recent weeks, signaling they may keep tightening policy for longer.
Authorities “need to see a decisive moderation in inflation,” RBI Governor Shaktikanta Das said on Feb. 8, with the central bank underscoring the importance of price gains staying within the 2%-6% target band. RBI last year had to write a report to the parliament after missing its 2%-6% headline inflation target for three straight quarters.
(Updates with details in seventh paragraph. An earlier version of the story was corrected to say inflation was above 6% first time in three months in the lead.)
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