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Hit by stagflation-type situation, India economic data likely to point to weak growth, high inflation

Mar 12 2014, 13:44 IST
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Cooling prices will offer some relief to the ruling Congress party, which is trailing in all opinion polls. PTI Cooling prices will offer some relief to the ruling Congress party, which is trailing in all opinion polls. PTI
SummaryCooling prices will offer some relief to ruling Congress, which is trailing in all opinion polls.

Indian consumer inflation and industrial output data on Wednesday will likely offer little evidence of a respite from high inflation and weak economic growth before a general election that begins next month.

Asia's third-largest economy has been struggling to recover from a stagflation-type situation where economic growth has been stuck below 5 percent for the past seven quarters while prices continue to rise at a fast clip.

Data for retail inflation and industrial output, due later on Wednesday, will likely show the same trend, according to a Reuters polls of economists.

Retail inflation is expected to ease further to a 25-month low of 8.35 percent in February from 8.79 percent in January on moderating vegetable prices. But industrial output is forecast to post a fourth straight fall in January, the longest phase of contraction that Indian factories have suffered in more than five years.

India's merchandise exports fell for the first time in eight months in February, signalling the country may miss its annual overseas sales target for the second straight year, data released on Tuesday showed.

TOO LITTLE, TOO LATE FOR CONGRESS PARTY?

Cooling prices will offer some relief to the ruling Congress party, which is trailing in opinion polls ahead of the polls that begin on April 7. It is still widely expected to go down to defeat, in part for its failure to control inflation and revive the economy.

Moreover, hail and heavy rains in the past two weeks have damaged crops, which could see food prices spike again.

"The lingering inflation risks call for central bank vigilance to keep it in check," Leif Eskesen, chief economist for India and ASEAN, wrote in a note last week.

Purchasing managers indexes are already pointing to underlying inflationary risks as rising input costs last month, thanks to higher raw material prices and wage increases, forced firms to pass on them to their clients.

This is likely to keep core retail inflation elevated. It has been stuck at around 8 percent for the past three months, a level new Reserve Bank of India (RBI) chief Raghuram Rajan deems uncomfortably high.

Retail inflation has been averaging around 10 percent for the past two years, way above a target of 4 percent recently proposed by an RBI panel.

In an attempt to quell price pressures, Rajan has raised interest rates three times since September, even though economic growth is languishing at around a decade-low of 4.5 percent. The central bank is next due

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