New Delhi: The headline inflation slowed slightly in October but was still high enough to be a headache for the central bank and the government as they struggle to tame prices and revive flagging growth ahead of elections.

Wholesale prices - main inflation gauge - rose an annual 7.45 percent, data showed on Wednesday. That was down from the 7.81 percent reported in September, as food and fuel prices rose less quickly, and less than the 7.96 percent predicted in a poll of analysts.

"The number is better than what most people had expected, but based on the past experiences there is a likelihood of the numbers getting revised," said Rupa Rege Nitsure, Chief Economist, Bank of Baroda, Mumbai.

The government revised up August inflation to 8.01 percent from 7.55 percent initially reported.

With the economy on track to post its weakest growth in a decade, the government is pressing the central bank to help revive economic activity ahead of a general election due in just over a year, with several state polls looming before that.

Dismal data on Monday saw the monthly trade deficit climb to its highest-ever level and a surprise contraction in industrial production, dashing hopes that the economy was regaining traction.

But the Reserve Bank of India (RBI) has so far rebuffed calls for lower interest rates, saying prices are still rising too fast to risk loosening policy much.  

The next monetary policy review is due in December.

"The Reserve Bank will wait till the headline inflation falls by 100 basis points more. The government is putting pressure, but the Reserve Bank will not succumb to that pressure until the inflation comes down to the comfort zone," Rupa Rege Nitsure said.

Prime Minister Manmohan Singh said in a speech over the weekend that his government had "dispelled doom and gloom" about the economy with a series of policy steps, including curbing fuel subsidies and liberalising foreign investment rules.

But investors are clamouring for the government to do more. They want Singh to push ahead with a reform agenda that has progressed fitfully, calling for a more business-friendly tax regime and speedier clearances for infrastructure projects.

For its part, the government is trying hard to get the economy back on track to bolster its re-election bid in 2014.

COMMENTARY

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

"This has come in below our expectations... with all probability it is likely that core inflation momentum may have seen some easing.

"Even at 7.45, it is still above the comfort zone (of the central bank) and RBI (Reserve Bank of India) would want to see a sustained drop in this inflation trend... I think we need to see a couple more months particularly in core inflation trending lower to give some confidence to RBI.

"Clearly, a lot of these pressures are still evidently supply-side driven. So the fiscal consolidation has to be more meaningful to allow a more sustainable downtrend in inflation trajectory."  

LEIF ESKESEN, CHIEF ECONOMIST FOR INDIA AND ASEAN, HSBC, SINGAPORE

"The inflation data is a surprise. It shows food inflation is lower than expected. But the underlying inflationary pressures are firm, and this number is not necessarily sufficient to change the Reserve Bank of India's reluctance to cut interest rates."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"The number is better than what most people had expected, but based on the past experiences there is a likelihood of the numbers getting revised.

"The Reserve Bank will wait till the headline inflation falls by 100 basis points more. The government is putting pressure, but the Reserve Bank will not succumb to that pressure until the inflation comes down to the comfort zone."    

BACKGROUND

- Industrial production unexpectedly shrank an annual 0.4 percent in September, compared with a forecasts of a rise of 2.8 percent in a Reuters poll.

-  India's annual consumer price inflation rose in October to 9.75 percent, government data showed.

- India's manufacturing growth inched up in October from September's 10-month low, supported by a pick up in new orders and an easing of price pressures.

- India's services sector grew at its slowest pace in six months during October as weakness in the United States and Europe hurt orders and forced firms to hire fewer workers, suggesting the worst of the economic slump is not over yet.  

- The Reserve Bank of India may ease monetary policy as early as January, Governor Duvvuri Subbarao said, as price pressures ease in Asia's third-largest economy in the first part of next year on the back of slower growth.

- The central bank left interest rates on hold last month but cut the cash reserve ratio for banks, defying pressure from the government to lower rates for the first time since April but also indicating it may ease policy in early 2013.  

(Agencies)

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