Have Rajan and Modi Beaten Inflation in India? - India Real Time - WSJ
- September 11, 2014, 9:45 AM IST
Have Rajan and Modi Beaten Inflation in India?
ByAnant Vijay Kala
Prime Minister Narendra Modi and Reserve Bank of India Governor Raghuram Rajan seem to be making all the right moves for the economy as
inflation rates may have eased to five-year lows last month, economists say.
A survey of 13 economists by The Wall Street Journal predicted that food and fuel inflation rates continued to slow in August, despite months of hand wringing about how weak monsoon rains could lead to higher food prices and trouble in the Middle East could push up fuel prices.
The median estimate of the economists was that wholesale price inflation
slipped to 4.40% in August from 5.19% in July. If their prediction is correct, it would be the lowest wholesale inflation rate India has seen since 2009.
The economists estimated that the country’s consumer inflation
would ease to 7.80% in August from 7.96% in July. The government is scheduled to release the official consumer inflation figures on Friday and the wholesale inflation numbers on Monday.
A late but significant pick-up in seasonal rainfall has brightened hopes that price pressures will continue to ease, keeping inflation in line with the central bank’s targets. The RBI wants to see consumer inflation no higher than 8% by January.
“A revival of monsoon rainfall as well as a favorable base effect are expected to moderate retail inflation between September and November,” said Aditi Nayar, senior economist at rating firm ICRA, a unit of Moody’s.
India’s June-through-September rainy season started late and initially was far below the 50-year average. Economists and weather watchers were worried that agricultural output would be hurt as most farmers in the country depend on the monsoon for irrigation.
“The concerns due to a bad monsoon are usually overblown,” said Dhananjay Sinha, head of institutional research with Emkay Global Financial Services.
Heavy rains in the last month have erased most of the water deficit for the year. New Delhi has also helped by releasing government food stocks to keep prices low.
Stability in global oil prices and the strength of the rupee have also helped keep prices from rising faster, said Radhika Rao, an economist at DBS Bank.
To be sure, the harvest from the crops which have been watered by the monsoon could still be bad and the oil prices could still surge, triggering fuel price inflation again. Still economists are cautiously optimistic that inflation seems to be under control and getting better.
“Gradual disinflation is underway,” said Ms. Rao.
