India's inflation jumped to 8.24 percent, the fastest since August 2004, adding pressure on the central bank to raise interest rates.
Wholesale-price gains accelerated for a seventh straight week through May 24, after increasing 8.1 percent in the previous week, the commerce ministry said in a statement in New Delhi today. Analysts had forecast inflation at 8.29 percent.
Lehman Brothers Holdings, Standard Chartered Bank and ICICI Securities Ltd. expect the inflation rate to rise to a 13-year high of 9.5 percent after the government increased fuel costs this week. Prices are rising amid slowing economic growth, making it harder for central bank governor Yaga Venugopal Reddy to decide whether to increase borrowing costs.
"While the central bank has shown reluctance to touch policy rates, this may change soon,'' said Prasanna Ananthasubramaniam, a Mumbai-based fixed-income analyst at ICICI Securities, a unit of India's biggest bank by market value. "The bank will be worried about worsening inflation expectations on the back of this week's fuel price hikes.''
Reddy said yesterday that prospects of more food output this year and curbs on farm exports will boost supplies and help tame inflation, playing down chances of higher interest rates.
Still, India's benchmark 10-year bond yield was unchanged at 8.23 percent, the highest in a year, after the inflation data. Inflation was mainly driven by higher costs of fuel, power and light, basic metals including steel and food grains in the week ended May 24.
Fuel Prices
India, which imports 70 percent of its oil, increased prices for gasoline by 11 percent, diesel by 9 percent and cooking gas by 17 percent after oil reached a record $135.09 a barrel in New York on May 22. India previously raised fuel prices in February, the first time since June 2006.
The changes in fuel prices announced on June 4 will be reflected in the inflation data due for release on June 20. The commerce ministry today raised its inflation estimate for the week ended March 29 to 7.75 percent from 7.41 percent.
Reddy, who has kept the benchmark interest rate unchanged at a six-year high of 7.75 percent since March 2007 and relied on forcing lenders to set aside more reserves to check consumer demand, said yesterday the central bank is ready to use its full range of instruments to curb inflation.
Reddy said the outlook for India's sugar production appeared bright and that for wheat output was positive.
To boost agriculture supplies, the government has scrapped import duties on edible oils and banned the export of pulses and rice in the past six months.
India's food grain production may increase to a record 227.3 million tons in the year ending June, helped by bumper rice, wheat and lentils output, the agriculture ministry said in April. It may receive an additional boost as rainfall in the four-month monsoon season that started last week is forecast to be adequate.
India's economy, Asia's third-largest, expanded 9 percent in the year ended March 31, the weakest pace in three years.
Wholesale-price gains accelerated for a seventh straight week through May 24, after increasing 8.1 percent in the previous week, the commerce ministry said in a statement in New Delhi today. Analysts had forecast inflation at 8.29 percent.
Lehman Brothers Holdings, Standard Chartered Bank and ICICI Securities Ltd. expect the inflation rate to rise to a 13-year high of 9.5 percent after the government increased fuel costs this week. Prices are rising amid slowing economic growth, making it harder for central bank governor Yaga Venugopal Reddy to decide whether to increase borrowing costs.
"While the central bank has shown reluctance to touch policy rates, this may change soon,'' said Prasanna Ananthasubramaniam, a Mumbai-based fixed-income analyst at ICICI Securities, a unit of India's biggest bank by market value. "The bank will be worried about worsening inflation expectations on the back of this week's fuel price hikes.''
Reddy said yesterday that prospects of more food output this year and curbs on farm exports will boost supplies and help tame inflation, playing down chances of higher interest rates.
Still, India's benchmark 10-year bond yield was unchanged at 8.23 percent, the highest in a year, after the inflation data. Inflation was mainly driven by higher costs of fuel, power and light, basic metals including steel and food grains in the week ended May 24.
Fuel Prices
India, which imports 70 percent of its oil, increased prices for gasoline by 11 percent, diesel by 9 percent and cooking gas by 17 percent after oil reached a record $135.09 a barrel in New York on May 22. India previously raised fuel prices in February, the first time since June 2006.
The changes in fuel prices announced on June 4 will be reflected in the inflation data due for release on June 20. The commerce ministry today raised its inflation estimate for the week ended March 29 to 7.75 percent from 7.41 percent.
Reddy, who has kept the benchmark interest rate unchanged at a six-year high of 7.75 percent since March 2007 and relied on forcing lenders to set aside more reserves to check consumer demand, said yesterday the central bank is ready to use its full range of instruments to curb inflation.
Reddy said the outlook for India's sugar production appeared bright and that for wheat output was positive.
To boost agriculture supplies, the government has scrapped import duties on edible oils and banned the export of pulses and rice in the past six months.
India's food grain production may increase to a record 227.3 million tons in the year ending June, helped by bumper rice, wheat and lentils output, the agriculture ministry said in April. It may receive an additional boost as rainfall in the four-month monsoon season that started last week is forecast to be adequate.
India's economy, Asia's third-largest, expanded 9 percent in the year ended March 31, the weakest pace in three years.
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1 comment:
Inflation hurts the poor far far worse than anyone else.
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