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World Economy

OPEC Monthly Oil Market Report – September 2017

23

India’s CPI inflation

accelerated to 2.4% y-o-y in July after bottoming out at 1.5% y-o-y in June. Food prices

excluding beverages deflated, decreasing 0.3% y-o-y, but the fall in food prices was much smaller than in the

previous month. The costs of housing, energy and clothing rose further and food prices fell at a softer pace.

In tandem with retail inflation, WPI inflation accelerated to 1.9% y-o-y in July, up from 0.9%

y-o-y in June. A surge in food prices offset a slowdown in the cost of manufactured products and fuel. On a

monthly basis, wholesale prices increased by 1.1%, after declining by 0.1% a month earlier. Meanwhile,

manufactured product inflation eased marginally to 2.2% y-o-y from 2.3% y-o-y in June. In the longer term,

the bigger question is whether India has witnessed a structural change to lower inflation. The second edition

of the Government's economic survey for the fiscal year 2016/17 (April–March) argues that India may be

undergoing a paradigm shift to low inflation as price pressures arising from food and fuel are easing.

Accordingly, it seems the supply-side bottlenecks and rapidly rising demand will put some upward pressure

on prices in the years ahead.

Graph 3 - 19: Indian GDP growth by supply side

India's trade deficit

widened sharply to $11.45 billion in July 2017 from $7.76 billion in the same month of

the previous year and below market expectations of a $12 billion gap. India's merchandise exports stood at

$22.5 billion in July, up 3.9% on a y-o-y basis. However, in sequential terms, merchandise exports declined

by 4.3% from June. Merchandise imports stood at $34 billion, down from $36.5 billion in June. In annual

terms, imports grew by 15.4%, down from the 19% y-o-y registered in June. Oil imports stood at $7.8 billion,

up 15% y-o-y. Meanwhile, gold imports nearly doubled y-o-y to $ 2.1 billion in July from $1.1 billion a year

earlier. The merchandise trade deficit narrowed to $11.4 billion from $13 billion in June.

The trade deficit stood at $79.6 billion for the first seven months of 2017, up sharply from $45.7 billion during

the same period a year ago. India has been recording sustained trade deficits since 1980, mainly due to the

high growth of imports, particularly of crude oil, gold and silver. The new GST regime impacted India's

merchandise exports. Although exports are technically excluded from the GST, many shipments have been

held up due to the confusion related to customs procedures, the input tax credit mechanism and other

related paperwork.

The appreciation of the Indian rupee vis-à-vis the US dollar is another deterrent to exports, making Indian

goods more expensive abroad, particularly in the US, one of India's major export markets. A stronger

currency and the GST-related disruptions would likely keep Indian exports subdued in coming months, but

import growth should remain contained, given the muted outlook for global oil prices and the slowdown in

domestic demand.

-5

0

5

10

15

20

1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17

% change y-o-y

Agriculture

Construction

Mining

Social and personal services

Manufacturing

Gas and water supply

Insurance, real estate and

business services

Transport and communication

Sources: Central Statistics Office and Haver Analytics.