Saturday, 9 February, 2008

India's Inflation Unexpectedly Accelerates to 4.11%

India's inflation unexpectedly accelerated to the highest in more than five months as prices of fruits, spices and salt increased.

Wholesale prices rose 4.11 percent in the week ended Jan. 26 from a year earlier, faster than the previous week's 3.93 percent, the Ministry of Commerce and Industry said today in New Delhi. Analysts had forecast inflation at 3.92 percent.

Prime Minister Manmohan Singh has capped fuel prices, cut import duties and supported the central bank's move to keep borrowing costs at a five-year high as rising prices may threaten the prospects of Singh's Congress party in ten state elections this year. National polls are due by 2009.

``Any changes on interest rates will get pushed to the second half of the fiscal year as the Reserve Bank is expected to maintain a wait-and-watch stance,'' said Indranil Pan, chief economist at Mumbai-based Kotak Mahindra Bank Ltd.

Singh's cabinet again avoided taking a decision on raising fuel prices this week, in a move to protect poor and contain inflation. Oil Minister Murli Deora said Jan. 31 the cabinet may consider revising prices this week.

India has not allowed any increase in gasoline and diesel costs since June 2006 to protect consumers and curb inflation even as crude oil prices rose 57 percent last year and reached a record $100.09 a barrel on Jan. 3.

Interest Rates

Inflation accelerated in the week as prices of manufactured goods, accounting for 64 percent of the wholesale price index, rose 0.3 percent from the previous week.

On the monetary side, the Reserve Bank of India kept the benchmark interest rate unchanged last week on concern rising fuel and food prices may fan inflation. The central bank has also allowed the rupee to appreciate to reduce the cost of imports and curb price gains.

That's helped the government damp inflation, which reached a more than two-year high of 6.69 percent in the same week a year earlier.

Inflation is a sensitive issue in the $906 billion economy and rising prices may cause the Congress party to lose votes in forthcoming elections. The term of Singh's government ends June 1, next year.

The ruling Congress party lost elections in four states in 2007, reducing its influence in parliament. The party was ousted in Punjab and Uttarakhand states and fell further behind in the nation's most populous provinces of Uttar Pradesh and Gujarat.

`Political Sensitivity'

Lower inflation will help the government to sustain the fastest pace of economic growth in 60 years. India, Asia's third-largest economy, is likely to expand 8.7 percent in the current fiscal year ending March 31, 2008, the slowest pace in three years, the government said yesterday.

``Given the political sensitivity of inflation, the government seems to have decided that it can live with a little less growth but just can't afford any increase in prices,'' Pan said. ``Hence, the delay in raising oil prices and the maintenance of high borrowing costs.''

India today revised the inflation rate for the week ended Dec. 1 to 3.89 percent from 3.75 percent. The government revises the inflation rate after a delay of two months on additional price data.

                       Week Ended   Week Ended   Percentage
Jan. 26 Jan. 19 Change

Primary articles 223.6 222.8 0.4
Fuel, power 334.4 334.4 Unchanged
Manufactured products 189.4 188.9 0.3
Food articles 220.4 219.9 0.2
Fruits 253.0 251.2 0.7
Food products 196.1 195.7 0.2
Edible oils 179.1 179.2 -0.1
Cement 219.9 219.9 Unchanged
Total 217.6 217.1 0.2