Indias annual inflation heads towards 8pc
Saturday, May 17, 2008
NEW DELHI: Indias annual inflation rate headed towards 8 per cent in early May, clocking a 3-1/2-year high, but analysts said it was unlikely to provoke more monetary tightening for now as economic growth appeared to be slowing.
The wholesale price inflation rate, Indias most widely watched measure, rose 7.83 percent in the 12 months to May 3, its highest since November 2004 and above a median forecast of 7.50 per cent in a Reuters poll.
The government and central bank have taken steps in recent weeks to calm inflationary pressures in Asias third-largest economy, and the finance minister said he expected inflation to moderate once cuts in steel and cement prices flowed through.
The surprise jump, which stemmed from higher prices of industrial fuel, metal products and some food items, briefly sent the rupee to a 13-month low against the dollar and the 10-year bond yield to its highest in more than two weeks.
I think pressures will persist in coming weeks and (inflation) will prevail above 7 per cent for the next three to four months, said D K Joshi, principal economist at domestic rating agency Crisil in Mumbai.
Its a Catch-22 situation as they (the central bank) have to manage slowing growth and rising inflation. Its a tough task.
Industrial output growth slowed to an annual 3 per cent in March, its weakest in six years, according to data this week, sparking concerns about a wider slowdown in the economy.
The 10-year bond yield rose 7 basis points after the inflation data to close at 7.93 perc ent and the rupee fell to 42.92 before finishing at 42.53/54.
Many analysts expect inflation to remain high and say it could climb to 8 per cent in coming weeks.
In addition, previous weeks readings have consistently been revised higher. On Friday, the inflation rate for March 8 was revised up to 7.78 per cent from a provisional 5.92 per cent.
The particularly striking feature of todays release is the extraordinary upward revision.
Its pretty clear that inflation is not 7.8 per cent, maybe 9 per cent at the moment and rising, said Robert Prior-Wandesforde, an economist at HSBC in Singapore.
He did not expect the Reserve Bank of India (RBI) to act just yet, but if inflation hit double digits, he expected it to raise rates and tighten cash conditions around July-September, although he doubted that would be very effective.
Against that background, it is going to be hard for the RBI to resist doing something more, he said.
Indias annual inflation heads towards 8pc