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India's inflation eases to four-month low

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(Globalpost/GlobalPost)

India's inflation slowed to a four-month low in June, data showed Monday, but an expected weak monsoon could push up food prices and pose headaches for the new government.

The Wholesale Price Index, the closest-watched cost of living monitor, rose by 5.43 percent year-on-year in June, the slowest pace since February and down from 6.01 percent in May, the commerce ministry said.

Prime Minister Narendra Modi's right-wing government came to power in May on a pledge to wrestle down stubbornly-high inflation which has angered voters amid a faltering economy.

The government has since ordered states to crack down on hoarders who keep food in stock while waiting for prices to rise, and has set limits on the export of staples such as onions and potatoes.

But there are mounting fears of a weak annual monsoon, which would slash crop growth and drive up food prices. This could encourage the central bank to keep interest rates on hold.

"The (June) fall is more due to statistical reasons," said Rupa Rege Nitsure, chief economist with Bank of Baroda.

"More worrisome is the huge deficit in rainfall across key areas of western India and simultaneous pick-up in core inflation."

The price of food across the board rose 2.2 percent in June from a year earlier, while fuel prices rose by 0.1 percent.

"If the monsoon rains fail in the coming months, concerns of higher food inflation are likely to return," said Siddhartha Sanyal, chief India economist at Barclays, in a research note.

Separate figures released Monday showed consumer price inflation, compiled from a smaller goods basket than the benchmark wholesale index, fell to 7.31 percent in June year-on-year compared to 8.28 percent in May.

The fall eases pressure on central bank governor Raghuram Rajan, who has made fighting inflation in Asia's third largest economy a priority, and raises hopes of an interest rate cut.

Despite pleas from business to reduce rates to kick-start the ailing economy, the Reserve Bank of India (RBI) has insisted monetary policy remain tight to tame inflation and ensure long-term growth.

The RBI, which kept rates unchanged last month, has raised its key lending rate three times since last September when Rajan was appointed. It now stands at eight percent. The next policy review is due on August 5.

The economy is mired in its deepest slowdown in a quarter-century -- last year's growth of just under five percent is half the rate seen a few years ago.

Modi's government unveiled its maiden budget last week, pledging faster economic growth, tighter fiscal discipline, greater openness to foreign investment and revamped infrastructure.

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