India preview: Inflation to surprise Reserve Bank with another slowdown

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The all items index rose 2.2 percent for the 12 months ending February, a slightly larger increase than the 2.1-percent rise for the 12 months ending January.

Excluding food and fuel prices, which can see big swings, the index also gained 0.2 per cent for the month, with noted gains in the prices for vehicle insurance, rent and apparel. Moreover, core inflation is sticky at around 5 percent, while an imposition of more tariffs on some imports like mobile phones is likely to boost price pressures, giving the RBI more ammunition to wait and watch. The consumer price inflation could be below 5 percent for the next two months followed by a rebound to 5.8-5.9 percent.

Citi believes that inflation could average around 4.6 percent in FY19. Economists had expected consumer prices to rise by 0.2%. Its positive correlation with the core CPI suggests that this measure would remain below the Fed's 2.0% inflation target when the February numbers are released.

(Kitco News) - Gold prices have turned positive on the day as markets digest a steady increase in US inflation pressures.

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The IIP growth in January this year was mainly on account of uptick in manufacturing sector, which constitutes of 77.63 per cent of the index. Similarly, inflation in the fuel and light segment slowed to 6.8% from 7.73% over the same period. While the manufacturing sector grew 8.7% in January, compared with 2.5% in the same month a year ago, capital goods grew 14.6% and consumer non-durables 10.5% in the month under review.

Last month, one member of the six-member monetary policy committee voted for a rate hike, another gave up his call for rate cuts while deputy governor in charge of monetary policy, Viral Acharya, also veered more towards the hawkish camp.

India's industrial production rose by 7.5% in January 2018 compared to that in January 2017, data released by the Ministry of Statistics and Programme Implementation showed. Risks like the higher minimum support prices (MSPs) for food grains promised in the budget, according to them, can push up the inflation in the next fiscal year.

Avery Shenfeld, senior economist at CIBC World Markets, said that while headline inflation is expected to rise, he is not expecting to see the Federal Reserve to aggressively raise interest rates this year. The decline comes after prices for new and used cars jumped last fall as residents of Texas and Florida replaced cars destroyed by hurricanes. The NFIB survey also showed almost a third of owners reported raising compensation to retain or attract workers last month, the largest share in more than 17 years.

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