Bloomberg News

India Consumer-Price Inflation Slows While Remaining Above 10%

July 18, 2012

Indian consumer-price inflation slowed in June while exceeding 10 percent and remaining the fastest among major economies.

The consumer-price index climbed 10.02 percent from a year earlier, compared with 10.36 percent in May, the Statistics Ministry said in a statement in New Delhi today.

India faces inflation risks from currency weakness and the impact of a below average monsoon on agriculture, even with economic growth at a nine-year low. The pace of price increases exceeds acceptable levels, central bank Governor Duvvuri Subbarao has said, as India struggles to find scope to join a monetary stimulus drive this month stretching from China to Brazil and Europe.

“High food prices and a weak currency are feeding into inflation,” Upasna Bhardwaj, a Mumbai-based economist at ING Vysya Bank Ltd., said before the report. The Reserve Bank of India will probably refrain from cutting interest rates on July 31 for the second straight meeting, she said.

The rupee, which has slid 19.5 percent against the dollar in the past year, weakened 0.4 percent to 55.3262 per dollar at 11:15 a.m. in Mumbai. The BSE India Sensitive Index fell 0.3 percent, while the yield on the 8.15 percent government bond due June 2022 slipped to 8.08 percent from 8.09 percent yesterday.

Indian consumer inflation is the fastest among the Group of 20 major economies. A separate wholesale-price index held above 7 percent for a fifth month, a report showed two days ago.

Jumps in the cost of living in a nation where most people get by on less than $2 per day prevented the central bank from lowering borrowing costs in June, following a 0.5 percentage point reduction to 8 percent in April.

Inflation in India is “way above” a threshold that may be around 5 percent, Subbarao said earlier this week, adding he wasn’t implying what he might decide at the July policy review.

The consumer-price gauge was created last year and the government started giving year-on-year data beginning in 2012. While it is too new to be used as the only headline measure of inflation, it can’t be ignored and arguably “reflects the most updated economic structure,” Subbarao said yesterday.

To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.


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