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Oil surge may harden RBI outlook as inflation accelerates to 17-month high

According to the Statistics Ministry, consumer prices rose 5.21 per cent in December from a year earlier

Anirban Nag & Archana Chaudhary | Bloomberg 

Retail Inflation

India’s retail accelerated more than estimated to a 17-month high and little respite is seen in the coming months amid a surge in oil prices, increasing the odds that borrowing costs will rise sooner than expected.

Consumer prices rose 5.21 per cent in December from a year earlier, the said in a statement in New Delhi on Friday, faster than the 5.10 percent Bloomberg consensus. Sovereign bonds fell in extended trading hours on growing concerns about and speculation the government will miss its deficit target for the year through March 2018 when it unveils its budget February 1.

That will be followed by the Reserve Bank of India’s policy review February 7, where most economists predict no change in rates. However swap traders are in the possibility of an increase.

"We are expecting the to retain its hawkish stance in the next few months, though we don’t see a rate hike anytime soon," said Anjali Verma, Mumbai-based economist at PhillipCapital. She added that higher fuel prices and poor monsoons could keep elevated.

A sustained rise to $65 a barrel for crude oil, India’s biggest import, could add 30 basis points to annual and a key measure of growth may weaken by 15 basis points, the estimates. It currently forecasts at 4.3 per cent to 4.7 per cent in the second half of the year through March 31, above the 4 per cent medium-term target. Brent crude is now trading at about $69.

Real Wages Lag

The rise in inflation, though, is unlikely to translate into higher wages, given subdued demand for jobs in an economy which is forecast to grow at its slowest pace in four years.

While overall salary increases in India will outpace the rest of Asia-Pacific in 2018, if adjusted for the raise will be much smaller and in fact lower than last year, according to

"Given the decreasing pattern in the year-on-year salary increases, Indian employees could very well see a single digit salary increase in 2018 for the first time since 2011," Sambhav Rakyan, the advisory firm’s data services practice leader for Asia Pacific, said in a report last month. "That would be slightly below our forecast.”

While India’s overall employment outlook for January-March has improved since the twin policy shocks of demonetisation and the consumption tax, most sectors are still weaker from the same period a year earlier, according to a survey by The

A relative lack of job opportunities is also being reflected in educational loans, where bad-debt is rising. So-called non-performing assets were 7.7 per cent of total advances in the sector for the year through March 2017 -- the highest in at least three years, lawmakers were told last month.

First Published: Sat, January 13 2018. 11:10 IST