Indian inflation tops ten percent

MUMBAI: Pressure grew on India’s central bank Monday to raise interest rates, analysts said, after fresh data showed inflation jumped into double figures in May at 10.16 percent.

The annual increase in the wholesale price index was pushed by rising food costs and surging manufacturing and industrial growth.

Adding to the pressure on the Reserve Bank of India (RBI) to announce a fresh rate hike were revised figures showing that the annual rate jumped into double figures in March for the first time since October 2008.

The news means the RBI will likely hike interest rates by another 25 basis points, even ahead of its next scheduled policy meeting on July 27, analysts said.

“We expect the RBI to act immediately to curb inflationary pressures,” said Rupa Rege Nitsure, chief economist with state-run Bank of Baroda.

The bank has already raised its two key short-term lending rates twice this year, by 25 basis points in both March and April.

The repo – the rate at which it lends to commercial banks – is at 5.25 percent and the reverse repo – the rate it pays to banks for deposits, is at 3.75 percent.

Governor Duvvuri Subbarao in the last policy review in April said “baby steps” would be required to be taken several times to reduce price pressures, possibly in between scheduled meetings.

The headline wholesale price index figure for May was above the 9.59-percent median forecast by analysts polled by Dow Jones Newswires.

Inflation had been clocked at 9.59 percent in April.

The March figure of 11.04 percent was an upward revision from a provisional figure of 9.9 percent.

India’s economic growth is bouncing back strongly led by the manufacturing and services sectors, as well as consumer demand.

In the industrial sector output was up 17.6 percent in April, its eighth straight month of double-digit growth.

The stronger economy is good news for New Delhi but the government is also under pressure from the opposition and anti-poverty groups to help mitigate the impact of the rising cost of living on the most vulnerable.

Complaints about food prices are commonplace, with the price of vegetables and other essentials up sharply over 12 months, mostly because of a weak monsoon last year which reduced crop output.

Siddharta Sanyal, of Mumbai-based Edelweiss Securities, said inflation was above their forecast of 9.6 percent, but he expected the RBI to raise rates only in its July policy meeting.

India’s inflation situation is “worrisome”, the RBI said in its monetary policy review this April, as it is well above its projected level of 5.5 percent, by March 2011.

Published in the Express Tribune, June 15^th, 2010.