(Bloomberg) -- India’s inflation accelerated to a 14-month high and breached the upper end of the central bank’s target, giving it further reason to delay cutting interest rates.
The consumer price index jumped 6.21% in October from a year earlier, data from the statistics ministry showed Tuesday, higher than the 5.9% rise predicted by economists in a Bloomberg survey. Inflation climbed 5.49% in September.
India’s benchmark 10-year bonds were up one basis point to 6.83%, after climbing as much as 3 basis points in earlier trade.
The central bank expected inflation to remain high in October largely due to statistical reasons and volatile food prices. Governor Shaktikanta Das had said last week that there are “significant upside risk to inflation” from rising commodity prices and continuing geopolitical conflicts. He also ruled out any immediate rate cuts despite the Reserve Bank of India’s neutral monetary policy stance.
Food prices, which make up about half of the consumer price basket, climbed 10.87% from a year earlier, after rising 9.24% in September. Vegetable prices jumped 42.18% from a year ago period.
Excluding volatile food and fuel prices, the core measure of inflation jumped 3.74%, compared with 3.56% in the previous month, according to calculations from Bloomberg Economics.
“We expect the uptick in food prices to keep the headline inflation higher than 5% even in the next reading before seasonal downturn begins to bring down inflation,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank Ltd.
Last month, Das reiterated his hawkish tone saying a rate cut at this stage would be “very risky,” and he’ll consider easing only after inflation sees a durable descent to the RBI’s 4% target. The central bank’s next scheduled policy meeting is on Dec. 6.
What Bloomberg Economics Says
A further surge in consumer inflation in October supports Reserve Bank Governor Shaktikanta Das’s latest hawkish remarks and points to the central bank retaining its neutral hold in December.
Abhishek Gupta, India economist
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Donald Trump’s win in the US elections last week may also complicate rate cut expectations around the world, and most economists have deferred their rate calls from December to next year.
The inflation print “closes the door for a rate cut in the December policy,” said Sakshi Gupta, an economist at HDFC Bank Ltd. Easing in the February policy meeting is also not a “done deal” given rising global uncertainties, she said.
Separate data showed the index of industrial production rose 3.1% from a year earlier after declining 0.1% in August.
(Updates with a chart and more details.)
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