Bloomberg News

India Inflation Exceeds 9% for 10th Month Amid Rate Pressure

October 14, 2011

(Updates rupee, bonds, stocks in sixth paragraph.)

Oct. 14 (Bloomberg) -- India’s inflation exceeded 9 percent for a 10th straight month in September, maintaining pressure on the central bank to extend its record interest-rate increases.

The benchmark wholesale-price index rose 9.72 percent from a year earlier after a 9.78 percent jump in August, the commerce ministry said in New Delhi today. The median of 21 estimates in a Bloomberg News survey was for a 9.75 percent increase.

Elevated inflation in India and China are crimping room for policy makers to ease monetary policy and support global growth amid Europe’s debt crisis and a faltering U.S. recovery. India’s central bank Governor Duvvuri Subbarao said yesterday that a more than 9 percent inflation is above “comfort level.”

“The inflation trajectory is not decidedly shifting downwards,” Samiran Chakraborty, a Mumbai based economist at Standard Chartered Plc, said before the report. He expects the Reserve Bank of India to raise its repurchase rate by a quarter of a percentage point to 8.5 percent at its Oct. 25 meeting.

India’s rupee has weakened 8.9 percent against the dollar this year as investors sold stocks in emerging markets because of risks to global growth, making the currency the worst performer in Asia and threatening to boost import costs.

The currency gained 0.1 percent to 49.06 per dollar at 11.47 a.m. in Mumbai. The yield on the 7.8 percent government note due April 2021 rose six basis points, or 0.06 percentage point, to 8.79 percent. The BSE India Sensitive Index advanced 0.6 percent.

‘Comfort Range’

India’s inflation must ease before interest rates can be reduced, Subbarao said Oct. 12. He said on Sept. 26 that price gains will slow by March 2012, “but more slowly than initially expected” and that a rate of 4 percent to 6 percent is the “short-term comfort range” for inflation.

In China, inflation exceeded 6 percent for a fourth month, according to a report today, limiting Premier Wen Jiabao’s room to cut borrowing costs.

By contrast, Brazil and Russia are among the so-called BRIC nations that have either cut rates or injected money into lenders to protect their economies from a possible global slowdown.

“As much as we look at what the other central banks are doing, we take into account our own domestic circumstances and the domestic context in formulating our policy,” Subbarao said yesterday.

Political Issue

Inflation is a political issue in India as it erodes spending power in a nation where the World Bank estimates more than three-quarters of the population live on less than $2 a day.

Subbarao has boosted the central bank’s benchmark rate 12 times since mid-March 2010 by a total of 350 basis points, the fastest round of increases since the Reserve Bank was established in 1935, Bloomberg data show.

That’s curbing consumer demand. Sales at companies including Maruti Suzuki India Ltd., the nation’s biggest carmaker, fell 1.8 percent in September, the third straight monthly decline, the Society of Indian Automobile Manufacturers said Oct. 10.

India’s industrial production rose less than expected in August, according to the Central Statistical Office. Output at factories, utilities and mines increased 4.1 percent from a year earlier, slower than the 4.7 percent median of 20 estimates in a Bloomberg News survey.

The International Monetary Fund last month cut its forecast for India’s economic growth. The South Asian economy will expand 7.8 percent in 2011, the Washington-based lender said, slower than the 8.2 percent projected in June. For 2012, it lowered its estimate to 7.5 percent from 7.8 percent.

“When inflation runs as high as 9.8 percent, it is difficult to bring it down without compromising on growth,” Subbarao said yesterday. “So we are trying the trade-off this time, by bringing down inflation even if it means compromising on growth by a few basis points.”

--With assistance from Manish Modi in New Delhi and Anoop Agrawal in Jaipur. Editors: Cherian Thomas, Lily Nonomiya

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


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