Poll: May inflation seen rising to 8.7%
India's wholesale price index is expected to rise by 8.70% in May, up slightly from the previous month, thanks to rising food and fuel prices, a Reuters poll showed.
June 10, 2011 / 17:18 IST
REUTERS FORECAST
India's wholesale price index is expected to rise by 8.70% in May, up slightly from the previous month, thanks to rising food and fuel prices, a Reuters poll showed.The headline price index dipped in April to 8.66% from 9.04% in March owing to a marginal fall in the price rise of some manufactured goods.Forecasts from 32 economists polled for the May figure ranged from 8.20 to 9.58%.FACTORS TO WATCH* India's food and fuel price indexes rose 9.01 and 12.46%, respectively, in the year to May 28, government data showed on Thursday.* Food makes up a little over 14% of the wholesale price index, while fuel contributes about 15%, and a quickening or softening in these components puts pressure on the headline figure in either direction.* The February inflation figure was upwardly revised in May to 9.54% from 8.31%, prompting analysts to expect April inflation to be revised closer to 10%.* Manufacturing PMI in May showed input and output prices continued to rise sharply, reinforcing expectations of further policy tightening by the central bank.* The economic advisor to the Prime Minister, C. Rangarajan, said on Thursday that India needs to raise prices of subsidised diesel in order to achieve its fiscal deficit target of 4.6% of GDP for this fiscal year.* The ruling Congress party has been on the back foot for the past year over rising prices of food and fuel, which have triggered street protests, and raising diesel prices would be politically unpopular for a party whose core voters are rural and poor.* India's industrial output in April grew 6.3% compared with 8.8% in March and was the slowest in three months. Friday's data was the first of a new series with a base year of 2004-05, new components and weightings.Under the old series, annual industrial output growth in April was 4.4%, lower than an upwardly revised 7.8% growth in March and below a median forecast of 5.5% expansion in a Reuters poll.MARKET IMPACT* The government bond and swap market has mostly priced in a 25 basis point rate hike at next week's mid-quarter policy review and an inflation number that slightly misses expectations won't change that view, dealers said.* Traders expect swap rates to rise by 10 basis points and federal bond yields by 5-6 basis points if May inflation comes in at 9% or above.However, if the number is lower than expected, bond yields and swap rates are not expected to ease more than 2-3 basis points, following a recent sharp fall.* The market may be little changed if the inflation number comes in line with expectations. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
