NEW DELHI: Consumer inflation probably edged up for the fifth straight month in December, driven by higher food prices, complicating the central bank's task of steering monetary policy at a time of international deflation.
Retail inflation
has been picking up since August, mainly due to a surge in prices of
items like lentils and posing a challenge to Prime Minister Narendra Modi.
The
government has revised its economic growth target to 7 to 7.5 per cent
for the fiscal year that ends on March 31 from an earlier estimate of
8.1 to 8.5 per cent, due to weak farm output and declining exports.
A
drought in many parts of the country for the second year has hit
production of rice, sugar, cotton and other crops, forcing the
government to resort to imports to tame prices.
Consumer
prices likely rose 5.6 per cent in December from a year earlier,
according to a poll by Reuters of economists, compared with November's
5.41 per cent.
Industrial output, however, likely slowed
to 2.3 per cent in November compared with a year earlier and from a 9.8
per cent rise in the previous month.
Both sets of data will released at around 1200 GMT on Tuesday.
Analysts
said a plan to hike salaries of federal government employees by nearly
23 per cent and irregular rainfalls pose risks to the Reserve Bank of
India's (RBI) target of capping retail inflation at 5 per cent by March
2017.
"I expect the RBI will keep interest rates on hold
in its next policy review," said N.R. Bhanumurthy, an economist at
National Institute of Public Finance and Policy (NIPFP), a Delhi-based
think tank.
The RBI is due to meet on Feb. 2 for its
next monetary policy review. After easing interest rates aggressively
last year, the RBI is likely to wait for cues from the budget and the
depreciation of Chinese yuan on India's trade performance.
New Delhi fears a further depreciation of yuan could lead to flight of capital from emerging markets like India.
Finance
Minister Arun Jaitley will present his 2016/17 budget at the end of
February. Officials say he could raise the service tax to nearly 16 per
cent from 14.5 per cent, further pushing up prices.
Bhanumurthy
said retail inflation was likely to remain in the range of 5-6 per cent
for next few months though the rural distress would contain demand.
"The RBI could wait and watch for some more time," he said.
