Is India's Inflation Headache Finally Over?

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India's key inflation gauge eased to below 6 percent in March for the first time since 2009, a sign that the days of stubborn inflationary pressures may finally be behind Asia's third largest economy, said economists, who forecast price increases to slow further in the coming months.

"March's inflation reading is significant – the below 6 percent print has come despite the administrative price increases, such as the fuel price hikes, that have taken place over the past six months," Rahul Bajoria, economist at Barclays told CNBC.

"But it reinforces that the growth situation in India is pretty weak, and weak demand is starting to feed into inflation. We expect this will continue over the next six months," he said, noting that the wholesale price index (WPI) will likely trend in the range of 5 percent over the next six months.

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The country's wholesale price index rose by a less-than-expected 5.96 percent last month from a year earlier – slower than the 6.84 percent rise in February – approaching the central bank's comfort zone of around 5 percent. WPI was forecast to have risen 6.4 percent in March.

Core inflation, which excludes fresh food and energy prices, eased for the seventh straight month to 3.5 percent - the lowest rate since February 2010.

On Friday data showed that consumer inflation also eased to 10.4 percent last month below expectations and the previous month's reading of 10.9 percent.

The fundamental drivers of easing prices, including weak industrial activity, lower monetary growth and softer commodity price inflation, will drive the headline rate down to 5 percent by September, according to Robert Prior-Wandesforde, director, Asian Economics at Credit Suisse. He expects core inflation to bottom at 3 percent by mid-2013.

India, which imports more than three quarters of its fuel needs, has been helped by lower commodity prices. Brent crude prices, for example, have fallen 10 percent over the past six months.

With falling global commodity prices, and hence easing inflation, the Reserve Bank of India has more room to cut rates, said experts.

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Both Bajoria and Prior Wandesforde expect the central bank will reduce rates by 25 basis points to 7.25 percent at its next meeting on May 3.

"Together with the central bank's on-going growth concerns, the modest dip in March consumer price inflation and today's [Monday] release is likely to provide the green light for a further 25 basis point rate cut," said Prior Wandesforde.

The Reserve Bank of India (RBI) has lowered its key policy rate twice so far this year, in January and March. The most recent cut brought interest rates down by 25 basis points to 7.5 percent.

The recovery in Asia's third largest economy has struggled to pick up speed, with gross domestic product growth (GDP) falling to 4.5 percent in the fourth quarter of 2012 - its slowest pace in 15 quarters - largely driven by a slowdown in investment.

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The country's benchmark Bombay Sensex index rose after the data was published, with banking stocks among the biggest gainers. The index traded up 0.6 percent at 0840 GMT.