India's inflation has fallen below 10 percent - its lowest level since February, official data showed Monday, giving the central bank room to slow its aggressive monetary tightening. The inflation decline in Asia's third-largest economy came as welcome news to the Congress government which has been under fierce opposition attack over high prices that have caused huge hardship, especially to the hundreds of millions of Indians below the poverty line.
The wholesale-price index (WPI) - India's main inflation measure - increased 9.97 percent in July from a year earlier after a 10.55 percent jump posted in June, the commerce ministry reported. Finance Minister Pranab Mukherjee welcomed the softer inflation data and said he anticipated more price falls.
Inflation "will moderate further", he said, attributing the better figures to "timely measures" by the central bank, which has increased interest rates four times since the start of the year to check rising prices. The weaker inflation figures, helped by falling vegetable and other food prices, undershot market forecasts of a 10.4 percent year-on-year jump.
Economists said the inflation decline meant the Reserve Bank of India might pause in its rate hiking cycle as it assesses the economic outlook. Mukherjee has warned monetary policy must not be tightened too rapidly. "If policy rates are hiked abnormally, there will be no investment, growth or job creation," he said.
The inflation numbers coincided with data last week showing industrial output grew at its slowest in 13 months along with new worries about the strength of the global economy. "My sense is the central bank won't do any rate hikes at its September policy rate-setting meeting," Sujan Hajra, chief economist at Anand Rathi Financial Services, told AFP.
The pace of rate hikes "will be a factor of domestic demand and the global situation," said D.K. Joshi, economist at leading credit rating agency Crisil. However, inflation needs to demonstrate it is clearly on a downward track before the rate hiking cycle can end, economists said. India's price spiral began in the food sector as a result of last year's monsoon which was the worst in nearly four decades. Food inflation has fallen by nearly half from its December peak of over 20 percent but manufacturing inflation, which reflects growing demand in India's increasingly affluent economy, has been rising.