India’s Inflation Exceeds Estimates, Adding Rate Pressure
May 16, 2011, 4:48 AM EDTBy Unni Krishnan and Kartik Goyal
(Updates with March revision in the second paragraph.)
May 16 (Bloomberg) -- India’s inflation was faster than estimated in April, adding pressure on the central bank to extend interest-rate increases as the biggest rise in gasoline tariffs in three years threatens to intensify price gains.
The wholesale-price index rose 8.66 percent in April from a year earlier, the commerce ministry said in a statement in New Delhi today. The median of 19 estimates in a Bloomberg News survey was for an 8.5 percent climb. Prices advanced a revised 9.1 percent in March, according to data compiled by Bloomberg.
The Reserve Bank of India pledged to maintain the fight against inflation after boosting borrowing costs this month for the ninth time since mid-March 2010, the fastest pace of rate rises among major Asian economies. The nation increased the cost of gasoline as much as 8.5 percent yesterday, triggering protests by the main opposition party.
“Inflation will further accelerate after hikes in oil prices, meaning the central bank’s focus will have to be on tightening to control inflation,” said Rupa Rege Nitsure, a Mumbai-based economist at Bank of Baroda. “There is going to be no respite from inflation this year.”
The Bombay Stock Exchange’s Sensitive Index fell 0.9 percent as of 1:42 p.m. in Mumbai after the inflation report. The rupee weakened 0.4 percent to 45.07 against the dollar, while the yield on the 7.8 percent note due April 2021 was up five basis points from 8.25 percent before the report.
‘Elevated’ Inflation
The ministry announced March’s revision after the release, saying the wholesale-price index has been adjusted from April 2004 after errors were discovered.
Governor Duvvuri Subbarao said on May 3 inflation will stay at an “elevated level” until September as he raised the central bank’s repurchase rate by half a percentage point to 7.25 percent. Counterparts from China to South Korea have also extended rate increases as Asia fights prices pressures spurred by elevated oil and food costs.
Monetary tightening in India will slow growth this year and help ease inflation to 6 percent “with an upward bias” by March 31, 2012, Subbarao said. India’s economy may expand “around 8 percent” in the year through March from 8.6 percent in the previous 12 months, he estimated.
For now, indicators such as industrial production and credit expansion show that consumer demand is holding up.
Industrial Output
Industrial output grew 7.3 percent in March from a year earlier, the fastest pace in five months, the commerce ministry said May 12. Commercial credit given by lenders including ICICI Bank Ltd., the nation’s biggest private bank, rose 22 percent from the previous year as of April 22, more than the 19 percent rate prescribed by the Reserve Bank.
Stronger consumer demand is giving companies scope to charge more for their products.
Maruti Suzuki India Ltd., India’s largest carmaker, boosted the prices of its vehicles by as much as 9,000 rupees ($200) last month, Mayank Pareek, the automaker’s head of sales, said April 5.
Inflation will accelerate further as the government raises fuel prices, said Madan Sabnavis, an economist at Mumbai-based CARE Ratings, a credit rating company.
Indian Oil Corp., the nation’s largest state-run refiner, raised the price of gasoline by 5 rupees a liter to 63.37 rupees in New Delhi. That’s the biggest increase since June 2008. Officials are trying to limit losses at state-run refiners and help the government cut fuel subsidies.
Fuel Protests
Activists from the main opposition Bharatiya Janata Party blocked traffic in many parts of New Delhi today to protest the rise, the Press Trust of India reported.
The end of elections last week in five provinces gives Prime Minister Manmohan Singh’s government room to ease fuel- price controls on state refiners.
Global crude oil prices are up about 40 percent in the past 12 months. Fuel prices in India gained 13.32 percent in April from a year earlier, compared with a 12.92 percent advance in March, today’s report showed. The price of manufactured goods rose 6.18 percent, compared with a 6.5 percent pace in March.
“I expect inflation to remain high over the next three months,” said Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd. “We could see the rate in double-digits in August.”
--With assistance from Manish Modi in New Delhi. Editors: Cherian Thomas, Sunil Jagtiani
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
