Saturday, 23 February, 2008

India Inflation Accelerates to Six-Month High on Food

India's inflation accelerated more than expected to a six-month high in the first week of February as prices of vegetables, fruits and lentils rose.

Wholesale prices climbed 4.35 percent in the week ended Feb. 9 from a year earlier, faster than the previous week's 4.07 percent gain, the Ministry of Commerce and Industry said today in New Delhi. It also exceeded the median forecast of 4.10 percent in a Bloomberg News survey of 11 economists.

Inflation in Asia's third-largest economy is likely to quicken further on higher energy and food costs after the government raised gasoline prices last week by about 4.5 percent, the first increase since June 2006. Crude oil reached a record $101.32 per barrel in New York on Feb. 20.

``The possibility of inflation rising in the coming weeks is likely to restrain the Reserve Bank of India from signaling any type of monetary easing immediately,'' said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai.

Bonds remained lower after the release of the inflation report. The price of the most-traded 7.99 percent note maturing in July 2017 fell 0.04, or 4 paise per 100 rupee face amount, to 102.65 as of 12:45 p.m.

India's central bank last month left its benchmark interest rates unchanged near a six-year high, citing concern that fuel and food costs may fan inflation in the $906 billion economy.

Inflation needs to be further slowed as it is still high by global standards, Reserve Bank Deputy Governor Rakesh Mohan said last week.

Fuel Prices

Prime Minister Manmohan Singh on Feb. 14 raised retail gasoline and diesel prices for the first time in 20 months to help cut losses at the nation's oil companies and lower the burden of record crude oil costs.

The government previously capped retail fuel prices and has lowered import duties over the past year, succeeding in slowing inflation from a two-year high of 6.69 percent reached in January 2007.

``Last week's increase in oil prices could have an indirect lagged impact of up to around 30 basis points,'' Kotak Mahindra's Pan said.

The index of manufactured goods, accounting for 64 percent of the inflation basket, rose 0.4 percent in the week. Primary articles, with 22 percent weight, rose 0.6 percent, the statement said.

The Commerce Ministry today revised the inflation rate for the week ended Dec. 15 to 3.84 percent from 3.45 percent. The government revises the rate from two months ago after receiving additional price data.

                       Week Ended   Week Ended   Percentage
Feb. 9 Feb. 2 Change

Primary articles 225.0 223.6 0.6
Fuel, power 334.0 334.0 unchanged
Manufactured products 189.9 189.2 0.4
Food articles 221.6 219.9 0.8
Vegetables 184.3 174.6 5.6
Food products 196.0 194.4 0.8
Edible oils 181.0 179.7 0.7
Cement 221.3 219.9 0.6
Pulses 232.5 230.6 0.8
Total 218.1 217.4 0.3