India’s Inflation at Lowest Levels in 10 Months
Dec. 17 – Indian inflation now appears to be waning as the country recorded its lowest inflation rate in 10 months in November – a revelation which surprised analysts and provided a welcome boon to an economy which has endured some tough moments in 2012.
India’s measure of inflation, the Wholesale Price Index (WPI), rose 7.24 percent in November, lower than the expected increase of 7.6 percent, and lower than the previous month’s 7.45 percent. Although these percentage point differences may seem minor at first glance, it should not be forgotten that India is now the world’s fourth-largest economy, and even a small deviation could represent billions of dollars in growth and trade.
The lower inflationary rates, which mainly occurred as a result of an easing in fuel and manufacturing costs, mean that it may now be possible for the Reserve Bank of India (RBI) to be able to begin reducing interest rates in January next year. Since a half-percentage-point cut in April, the RBI has refused to lower interest rates, despite calls for action from industry and government officials to implement policies to revive growth.
However, while the decline in India’s WPI has been welcome, government officials have been wary to overreact. C. Rangarajan, the head of Prime Minister Manmohan Singh’s Economic Advisory Council, highlighted that consumer price inflation rose at an upsetting pace in November.
“I don’t think that the economy can continuously bear a very high level of inflation. We should work towards a more comfortable level of [wholesale] inflation, which is in the region of 5 percent to 6 percent,” said Mr. Rangarajan.
Furthermore, Finance Minister P. Chidambaram stated that he did not believe that November’s lower wholesale inflation rate was indicative of a downward trend.
“Our expectation is that it will trend downward over the next two to three months. If it trends downward, then I think it will be reason for comfort,” he said.
This inflationary trend comes among other recent welcome economic news, such as India’s industrial output and investment increase in October. This has raised hopes that India’s slide in economic growth this year has at last begun to show signs of ending.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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