CPI-based inflation likely fell to 5.80 per cent for October, shows poll

The country's inflation is expected to slow to a record-low in October, dragged by sharp drops in food and oil prices, a Reuters poll showed, probably intensifying calls for an interest rate cut by the Reserve Bank of India (RBI).

The survey of 27 economists and analysts predicted consumer price inflation (CPI), scheduled for release on Wednesday, cooled to an annual 5.80 per cent in October.

The recent slowdown in inflation has largely been due to falls in local food prices, which account for 50 per cent of the CPI (Consumer Price Index) basket, and Capital Economics' economist Shilan Shah said it could still go lower.

"Over the coming months, we suspect that both measures of inflation will remain subdued by past standards," Shah said.

Wholesale price inflation is forecast to ease to a near five-year low of 2.20 per cent in October from September's figure of 2.38 per cent, the Reuters poll showed.

Official government data for inflation will be released on Friday.

If the inflation forecast is met, it will be even lower than September's figure of 6.46 per cent and the slowest pace of price rise since retail inflation numbers were first published in January 2012.

Meeting the forecast would also make the RBI's inflation targets - 8 per cent by January 2015 and 6 per cent a year later - appear more attainable.

The poll also predicted that industrial production increased by a meager 0.6 per cent in September, albeit better than the August-figure of 0.4 per cent.

A poor factory output number on Wednesday will imply the domestic economy may struggle to maintain a recent pickup in growth.

"Monetary loosening could come onto the agenda sooner than most seem to expect," Shah said.

The economist said the central bank could cut its benchmark repo rate by 100 basis points to 7.00 per cent over the next 12 to 18 months.

However, some say the Reserve Bank may not want to release the monetary policy brakes in a hurry.

"These releases will point to slowing industrial activity alongside slippery inflation - a combination that will add to the growing chorus for rate cuts in December," said Radhika Rao, economist at DBS.

"But the RBI is unlikely to oblige."

The country's apex bank will wait for more clarity on inflation and rates could stay unchanged until March,2015 , after the government releases its budget, Rao added.

A Reuters poll last month showed economists expect the country's central bank to keep its key repo rate steady at 8.0 per cent well into 2015, as it remains wary of a sudden surge in inflation due to a spike in food and oil prices.

(Reuters)