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India’s Headline Inflation Breaches Central Bank’s Threshold

Vrishti Beniwal
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Rising Onion Prices Fueling India Inflation, Not Rates

(Bloomberg) -- India’s retail inflation quickened for the third straight month in October, breaching the central bank’s 4% medium-term target and possibly slowing the pace of monetary policy easing.

Consumer prices rose 4.62% last month from a year earlier, the Statistics Ministry said in a statement on Wednesday. That is higher than the 4.35% median estimate in a Bloomberg survey of 34 economists.

Key Insights

Food and beverage inflation rate accelerated to 6.93%, fueled by a more than 26% surge in prices of vegetables, including onion that forms the base of the Indian gravy. Pulses and products gained 11.7%, while fuel and light prices fell 2.02%While the Reserve Bank of India has cut interest rates five times this year, including an unconventional 35 basis point reduction in August, the above-4% inflation print may limit its room for making another deep cutFor now, RBI Governor Shaktikanta Das has said policy makers will “continue with the accommodative stance as long as it is necessary to revive growth” in an economy expanding at the weakest pace in six yearsGross domestic product data for the three months to September is due Nov. 29

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The law mandates RBI to maintain inflation in a range of 2% to 6%, but monetary authorities have eased policy to revive demand in the economy after waning consumption hit growth in Asia’s third-largest economyFactory output posted the steepest decline in eight years in September, and latest high-frequency data show there was no respite from the slowdown in the fiscal third quarter started October. Purchasing managers surveys signaled weak manufacturing and services activity last monthData on Friday will probably show India’s trade deficit widened in OctoberTo get details of the statement on consumer price gains, click here

(Updates with vegetable price inflation under Key Insights)

--With assistance from Tomoko Sato.

To contact the reporter on this story: Vrishti Beniwal in New Delhi at vbeniwal1@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Karthikeyan Sundaram, Jeanette Rodrigues

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