India said Monday inflation rose to near double figures as roaring economic growth sent prices higher, fuelling expectations that the central bank will raise rates next month. Prices of fuel, rubber, plastic and cement all jumped during February, as the economy accelerated out of last year's global downturn, led by a strong recovery in the industrial sector.
Annual inflation as measured by the wholesale price index, or WPI, rose to a 16-month high of 9.89 percent in February from 8.56 percent in January. Food prices rocketed 17.79 percent after the country's worst monsoon in nearly four decades last year, raising pressure on the government, which has been under attack from the opposition over the rising cost of living.
Experts said inflation could jump further for next month. India's chief economic advisor to the finance ministry, Kaushik Basu, said he did not rule out inflation crossing into double digits next month. The headline figure was seen by analysts as making an increase in key interest rates by the central bank extremely likely, possibly by as much as 50 basis points, when it holds its next scheduled meeting on April 20.
"The RBI will have to act. We are seeing higher fuel and commodity prices," said Rupa Rege Nitsure, chief economist with the state-run Bank of Baroda. The year-on-year rise in the WPI was above the average 9.70 percent forecast in a Dow Jones Newswires poll of nine economists, and far higher than the target set by the central Reserve Bank of India. The RBI has estimated that inflation will be 8.5 percent in March, when the current Indian financial year ends.
The news follows publication of Indian industrial output data, which showed a rise of 16.7 percent in January. The whole economy is expected to expand 7.2 percent in 2009-2010. The RBI is expected to hike the short-term repo, the rate at which it lends to commercial banks, by 50 basis points at its April meeting, economists said. The central bank last raised interest rates in July 2008.
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