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India boost as inflation eases to slowest pace

NEW DELHI: India's headline inflation unexpectedly eased to its slowest pace in eight months in October, a welcome relief from a string of bad data but still high enough to be a headache for policymakers struggling to balance the need for growth with taming prices.

Wholesale prices - India's main inflation gauge - rose an annual 7.45 per cent, the slowest pace since February, government data released yesterday showed.

The figure was slower than the 7.81pc recorded in September, as food and fuel prices rose less quickly, and less than the 7.96pc predicted in a Reuters poll of analysts.

With India's economy on track to grow at its worst pace in a decade, and a general election due in just over a year, the government has been pressing the Reserve Bank of India (RBI) to cut interest rates to revive growth. But the central bank has rebuffed those calls, saying prices are still rising too fast to risk loosening policy.

The latest inflation reading is still seen as too high for the RBI to bow to pressure from the government and businesses by cutting rates at its next policy review next month. However, it could do so early next year.

"Despite the downtick, elevated inflation will prevent the RBI from easing aggressively," said Jyoti Narasimhan, senior principal economist, IHS Global Insight.

"With inflation unlikely to recede substantially, we no longer expect the RBI to soften its stance and cut policy rates on December 18 to support flagging economic growth."

Data on Monday showed the monthly trade deficit climbed to its highest-ever level, while industrial production surprisingly contracted, dashing hopes that the economy was regaining traction.

Prime Minister Manmohan Singh's government is trying hard to get the economy back to the near double-digit growth that helped project India as a rising global power and helped Singh's Congress party win two back-to-back elections since 2004.

But with state polls looming and a general election due in 2014, an economic revival would help Singh generate resources to fund big-ticket welfare programmes meant for his party's core constituency comprising poor and rural voters. It would also help mitigate anger at rising prices.



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