Oil, battered rupee: Mounting risks that are difficult for RBI to ignore

India’s headline inflation data may be subdued for now, but there are mounting risks that are difficult to ignore: a record-low currency, high oil prices, and a looming election that’s prompting the government to raise food prices to placate farmers.

Data due Friday evening will probably show consumer prices rose 4 per cent in September, according to the median of 35 estimates in a Bloomberg survey of economists. That pace is faster than the previous month’s, but bang on the target set by the Reserve Bank of India.

Inflation within target and signs that demand may be cooling in the world’s fastest-growing major economy prompted the central bank to keep interest rates on hold last week, and lower the forecast for gains in consumer prices. The RBI expects inflation in the range of 3.9 per cent to 4.5 per cent in the second half of the fiscal year to March 2019, down from 4.8 per cent projected earlier.

While headline inflation has eased in recent months, the core measure, which strips out volatile fuel, food and electricity prices, has been sticky at around 6 per cent.

“We expect core inflation to stay sticky at 5.87 per cent due to the steady build-up of demand-pull price pressures,” said Rupa Rege Nitsure, chief economist with L&T Finance Holdings Ltd. in Mumbai. “Moreover, sustained spikes in Brent crude prices and massive rupee depreciation have clouded the outlook for inf...

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