India’s Inflation Likely Edged Higher in May

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The FINANCIAL — India’s consumer inflation rate likely edged higher in May as unseasonal rainfall earlier this year drove up food prices while increases in fuel costs added pressure, according to Nasdaq.

The consumer-price index likely rose 5% from a year earlier, according to the median estimate of 13 economists polled by The Wall Street Journal. That’s slightly higher than April’s 4.87% increase.

Wholesale prices, which are less influenced by food, likely fell for the seventh straight month, sliding 2.50% in May, the poll shows. The wholesale price index fell 2.65% in April.

India’s government is scheduled to announce consumer-inflation data on June 13 and wholesale data on June 15.

Untimely rains in February and March damaged crops in many parts of India this year. Economists said this is expected to push up prices of food, which make up about half of the consumer-goods index.

Further, fuel retailers raised gasoline and diesel prices twice in May, which increased fuel costs.

While consumer inflation still is well below the 6% target for January set by the Reserve Bank of India, forecasts of deficient levels of rainfall during the June to September monsoon season have caused worries that farm output will be hurt and lead to a spike in food prices.

However, some economists say the risks are manageable. In fact, food inflation has dropped from about 11% last year to about 6% lately despite below-normal rainfall last year, suggesting the government ensured supplies weren’t affected.

“The government’s more active management of food stocks, allowing only a modest increase in minimum support prices [prices the government pays to farmers for their produce] of agro commodities, and stronger vigilance have played a major role in containing food inflation and inflation expectations,” Barclays said in a research note.

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“We thus expect food inflation by and large to remain better anchored unless the monsoon shortage turns out to be worse than current forecasts, ” it added.

 

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