Indian wholesale price inflation slips back from record high

Posted on October 14, 2016

Indian inflation decelerated a tad in September retreating from record highs, a development that follows a surprise interest rate cut from the central bank under its new governor this month.

Wholesale prices in Asia’s second largest economy rose by 3.57 per cent on the year to last month, down from the 3.74 per cent annual pace reached in August, and disappointing economist expectations of 3.9 per cent growth.

The price index, which measures everything from sugar, potato and pulses, is a key metric in an economy where a majority of the population live below the poverty line.

Wholesale prices have now recorded their sixth straight month of inflation having fallen negative in late 2014, but September’s reading was the first instance of deceleration since April.

Prices were pushed down as food inflation softened markedly to 5.75 per cent year on year from 8.23 per cent a month prior, but rising global oil prices pushed fuel and power costs up 5.58 per cent for the period, compared to a rise of only 1.62 per cent in August.

Last month, the country’s new central bank governor Urjit Patel announced a a 25 basis point cut to its key policy rate on the back of a recently muted outlook for consumer prices.

But the central bank warned of upcoming “cost push pressures” as recent increases in salaries and housing allowances for India’s millions of central government employees is set to push up headline inflation this year.

(Chart: Bloomberg.)

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