Caught in a dilemma of an economic slowdown and persisting high inflation, anxious policy makers will hope this week for real clues whether talk of an industrial rebound are real or imagined, and whether there is scope to ease interest rates.
Three sets of data are expected over the next eight days—on factory output, retail price inflation and the benchmark wholesale inflation. While factory data will diagnose the urgency of the slowdown, a positive sign on inflation may offer signals for its cure.
High inflation, a falling currency and poor economic growth have hit the UPA government at the worst possible time — key state elections are less than two months away, and national polls less than a year distant.
Factory output data for August will be released on Friday. Inflation data (both retail and wholesale) for September are to be released on October 14.
Skyrocketing onion and vegetable prices and costlier staples such as rice pushed India’s wholesale inflation to 6.10% in August. Food prices grew at 18.18% in August compared to 11.91% in July.
Retail price mirrored similar trends with shop-end prices of vegetables and cereals soaring by 26.28% and 13.65% respectively in July. Retail inflation was 9.52% in August, marginally lower than 9.64% in July.
Experts cautioned that vegetable prices are a worry.
“For inflation to fall off, we would need fruits and vegetables prices to fall, which are not as affected by monsoons,” Credit Suisse said in a recent report.
The index of industrial production, which measures factory output, grew 2.6% in July, expanding for the first time in three months triggering hopes of an industrial turnaround.
Analysts had cautioned that it may too early to see a sustained rebound, as heightened inflation risks will likely prompt the Reserve Bank of India to keep interest rates high.
“The build-up in underlying inflation pressures suggests that the RBI has to keep its inflation guards up,” said Leif Eskesen, chief economist for India and ASEAN at HSBC.