A renewed spurt in food prices and costlier fuels pushed headline inflation to 9.73 per cent in October,one basis point above the September figure,catching analysts who expected a moderation off-guard and raising doubts about the efficacy of the monetary tightening of 18 months. With inflation stubbornly high above 9 per cent for the eleventh month now predictions by the government and the RBI that it would decline to 7 per cent by next March clearly seem unrealistic.
Slowing economic growth and rising prices amid the possibility of a recession in the euro zone have posed particularly tough challenges for the government.
Ironically,having travelled so far in its tightening cycle,the RBI could still look for some results and might stick to the same path. This is despite the fact that high interest rates have already dampened the appetite for investments and industrial output growth tapered to a two-year low of 1.9 per cent in September.
Several analysts,though,expect RBI to pause and address growth risks. The countrys GDP grew 7.7 per cent in April-June,the slowest in six quarters.
Finance minister Pranab Mukherjee said on Monday the government would need to take supply-side measures to cool food inflation. I do hope the full impact of the good monsoon will be felt and steps we have taken to improve the supply side will yield results, he said. The government and the RBI had earlier said inflation would cool off by December.
Yield on the benchmark 10-year government bond rose to 8.98 per cent,compared with Fridays 8.94 per cent. The falling rupee,which directly impacts Indias oil import bill,is also adding to inflationary pressures. Due to persistent dollar demand from importers and a fall in the euro,rupee traded at 50.25/26 to a dollar on Monday,down from 50.11/12 to a dollar on Friday.
Manufacturing inflation,which has a 65 per cent weight in WPI,eased to 7.66 per cent in October from 7.69 per cent a month ago. Food inflation rose to 11.06 per cent in October from 9.23 per cent in September,on costlier pulses,vegetables and high-protein items.