India's annual wholesale inflation jumped to a higher-than-expected 5.89 percent in the week ended June 12 on a rise in food and manufactured product prices, pushing up bond yields on fears of rising interest rates.
It was higher than a median forecast of 5.55 percent in a Reuters poll of 11 analysts, which would have left it unchanged on the previous week. Inflation stood at 4.97 percent in the same week a year ago.
Analysts say inflation is likely to show a rise next week as well, given that the left-leaning Congress government hiked petroleum prices on June 16 to align them with higher global oil prices. India imports 70 percent of its crude oil needs.
The yield on the benchmark 10-year bond rose nearly 10 basis points to 5.8641 percent after the release of the inflation figure, nearing levels not seen since May 2003.
The 10-year has risen nearly 40 basis points this week, hit by comments in a newspaper from central bank chief Y.V. Reddy that he might revisit monetary policy if global rates rose faster than expected.
Given an inflation rate approaching six percent, this could mean a rise in interest rates from three-decade lows, they said. In its annual policy statement last month, the central bank had projected inflation at five percent for the year to March 2005.
The manufactured products index, which accounts for more than 60 percent of the wholesale price basket, rose 0.6 percent to 163.7 in the week ended June 12 from 162.7 the previous week.
Food articles rose 0.2 percent on the back of a rise in egg, tea, fruit and vegetable prices.
Despite the rise in global energy prices, the fuel, power, light and lubricants index remained unchanged at 265.5 in the week ended June 12.
Analysts said the rise in fuel prices would have a spiralling effect as transport costs rise and lead to a higher prices for commodities such as grains, fruit and vegetables.
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