Indian inflation eases again

Indian inflation eased for the third week running at the end of August and a top policy adviser said it may have peaked, but analysts said pressures remained and the central bank could still tighten policy again.
The wholesale price index, India's most widely watched price measure, rose 12.10 percent in the 12 months to August 30, below the previous week's 12.34 percent rise but above a median forecast of 11.96 percent in a Reuters poll. "This is the third observation which has given us a more comfortable number, but it's too premature to say that inflation has peaked," Rupa Rege Nitsure, chief economist at Bank of Baroda, said after the data on Thursday.
"In the (October-December) quarter the risks to the inflation scenario remain from food grain prices, prices of pulses, sugar, edible oil and cotton. Inflation will peak around 13.5 to 14 percent in the quarter and the central bank will continue with its tightening mode, especially the cash reserve ratio."
Other analysts said while the inflation rate would remain high, signs of easing price pressures meant the central bank did not need to raise interest rates further. The bank has used both liquidity measures and rates to manage demand. In early August, the inflation rate was 12.63 percent, the highest reading since annual numbers in the current data series became available in April 1995.
Ahead of the data, the chairman of the prime minister's Economic Advisory Council, Suresh Tendulkar, told Reuters the inflation rate may have peaked and the central bank may pause in its rate tightenining. "My gut feeling is that it has peaked," Tendulkar said in a telephone interview.
A Reuters poll before the data showed economists had scaled down expectations of further interest rate increases in 2008/09 as recent policy steps and falling oil prices are seen calming double-digit inflation. Slowing growth would also be a concern for the central bank, they said. The Reserve Bank of India lifted its main lending rate in both June and July to tame inflation, and it now stands at a seven-year high of nine percent.
Financial markets closed before the data was released. The 10-year benchmark bond yield ended at a three-month closing low of 8.28 percent on market talk inflation would be lower than expected.
New central bank governor Duvvuri Subbarao said on Tuesday inflation was showing signs of moderating but it was too early to conclude whether this was a trend, signalling he would wait and see before taking any fresh steps. The central bank aims to cut inflation to 7 percent by the end of the fiscal year in March.