India's wholesale prices fall most in three decades
Friday, 14 August 2009
NEW DELHI, Aug. 13 (Bloomberg): India's wholesale prices fell the most in three decades, giving the central bank more time to keep interest rates at a record low before weak monsoon rains reduce harvests and stoke inflation.
The benchmark wholesale-price index declined 1.74 per cent in the week to Aug. 1 from a year earlier after falling 1.58 per cent in the previous week, the government said today. That was the biggest retreat since June 1978, when prices dropped 1.9 per cent, according to the central bank's monthly data.
Prime Minister Manmohan Singh on Aug. 8 said below-average monsoon rains are likely to reduce crop output and may have an inflationary impact "in the coming months." India relies on the seasonal monsoon to produce food for its 1.2 billion people, as half the nation's arable land isn't irrigated.
"Food inflation, which is already pressurized, will face further pressure due to poor rainfall," said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor's. "An erratic monsoon so far and a severe deficiency in the first week of August have raised the specter of drought in India."
The India Meteorological Department on Aug. 10 lowered its monsoon forecast for a second time this season, saying showers in the June-September season will be 13 per cent below average, compared with a 7 per cent shortfall estimated in June.
Poor rainfall may curb farm output and erode the purchasing power of 742 million Indians who live in the countryside, hurting Prime Minister Singh's efforts to revive growth, create jobs and cut poverty.
State governments have declared droughts in 167 of India's 626 districts, the farm ministry said yesterday. Areas under rice cultivation have declined 20 per cent to 22.82 million hectares, according to the ministry.
Wholesale prices are falling because of a high base last year, and inflation will accelerate to as much as 6.5 per cent by March 2010, said Tushar Poddar, an economist at Goldman Sachs Group Inc. in Mumbai. That may prompt the central bank to reverse interest-rate cuts and raise borrowing costs by 300 basis points in 2010, he said.
The benchmark wholesale-price index declined 1.74 per cent in the week to Aug. 1 from a year earlier after falling 1.58 per cent in the previous week, the government said today. That was the biggest retreat since June 1978, when prices dropped 1.9 per cent, according to the central bank's monthly data.
Prime Minister Manmohan Singh on Aug. 8 said below-average monsoon rains are likely to reduce crop output and may have an inflationary impact "in the coming months." India relies on the seasonal monsoon to produce food for its 1.2 billion people, as half the nation's arable land isn't irrigated.
"Food inflation, which is already pressurized, will face further pressure due to poor rainfall," said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor's. "An erratic monsoon so far and a severe deficiency in the first week of August have raised the specter of drought in India."
The India Meteorological Department on Aug. 10 lowered its monsoon forecast for a second time this season, saying showers in the June-September season will be 13 per cent below average, compared with a 7 per cent shortfall estimated in June.
Poor rainfall may curb farm output and erode the purchasing power of 742 million Indians who live in the countryside, hurting Prime Minister Singh's efforts to revive growth, create jobs and cut poverty.
State governments have declared droughts in 167 of India's 626 districts, the farm ministry said yesterday. Areas under rice cultivation have declined 20 per cent to 22.82 million hectares, according to the ministry.
Wholesale prices are falling because of a high base last year, and inflation will accelerate to as much as 6.5 per cent by March 2010, said Tushar Poddar, an economist at Goldman Sachs Group Inc. in Mumbai. That may prompt the central bank to reverse interest-rate cuts and raise borrowing costs by 300 basis points in 2010, he said.