beyondbrics

India’s rate of inflation eased to 9.11 per cent for the month of November, down from 9.73 per cent in October – an improvement, but not as much as was expected nor as much as India needed, economists told beyondbrics.

The November data, released Wednesday, came on the third consecutive day in which the rupee hit an all-time low against the dollar – Rs53.75 as of Wednesday – amid lowered growth forecasts and just two days before the Reserve Bank of India’s monthly policy review meeting.

The number, higher than the 9 per cent market consensus forecast, is not as good as it could have been, economists said, but won’t keep the RBI from pausing on interest rates, which it has raised 13 times since March 2010 to combat persistently high inflation.

It will, however, prompt the RBI to address the weak rupee, which is clearly affecting core inflation, Shubhada Rao, chief economist at Yes Bank, told beyondbrics.

This figure is “not so very good because clearly manufacturing inflation has inched up and to a large extent as we’ve seen in October, chemicals and base metals have risen year over year, and its more clearly the impact of the weak rupee,” she said. “That is something RBI will have to address – with rupee falling faster and faster the last few days, [it] will have impact on core inflation as the months go forward.”

The rupee is Asia’s worst performing currency this year, having depreciated nearly 18 per cent since July, and analysts say it could fall further still with the economy slowing and foreign inflows drying up.

At an economic summit in Delhi Wednesday, finance minister Pranab Mukherjee seemed to imply that the government had little ability to stem the slowdown while the eurozone crisis remained unresolved, according to the Economic Times.

This slowdown has “happened despite the aggressive use of both fiscal and monetary policy tools… it poses serious problem for policymakers. Going forward, it limits our options in dealing with the emerging situation,” Mukherjee said.

Inflation for manufactured goods, which make up nearly 65 per cent of the index, was at 7.7 per cent, compared to 5.02 per cent last year, while primary articles, which comprise around 20 per cent of the index, was down to 8.53 per cent from 14.67 per cent last year on the back of a surprise fall in food prices.

Meanwhile, fuel and power, around 15 per cent of the index, was up to 15.845 per cent from 10.32 per cent last year.

November’s numbers – and a revision upward of September’s inflation from 9.7 per cent to 10 per cent – mean any hoped for reversal on rates by the RBI is unlikely any time soon, Leif Eskesen, chief economist for India, wrote in a note.

“Today’s number is yet another reminder of the persistent and significant underlying inflation pressures still plaguing the economy, notwithstanding the decline in food inflation, he wrote. “As such, it also suggests that the RBI, in our view, is forced to maintain a tight monetary stance for a while still until the inflation outlook improves significantly.”