Business | Economy
India inflation shoots to 13-year high at 11.05%
Analysts predict rapid rise in key interest rates as central bank runs out of options to tame runaway prices.
- Reuters
- Published: 00:08 June 21, 2008
New Delhi: Indian inflation shot above 11 per cent in early June to a 13-year high following a rise in state-set fuel prices, rattling markets and prompting the finance minister to warn of stronger anti-inflation measures ahead.
Inflation is on the rise globally and has also reached double digits in other countries, including Indonesia, Vietnam, Sri Lanka and Pakistan as oil, food and other commodity prices soar.
India government bond yields jumped to their highest in nearly seven years after yesterday's data and the finance minister's warning, while shares fell to their lowest levels in 2008 on concern that interest rates will move up.
Traders said the central bank, which raised rates just last week, stepped in to support the weakening rupee after the release of India's wholesale price index (WPI), the country's most widely watched inflation measure.
The index showed annual inflation jumped to 11.05 per cent in the 12 months to June 7, its hottest pace since May 1995 and much higher than forecasts for 9.82 per cent. It also marked a big jump from 8.75 per cent in the week-earlier data.
"The number is quite intimidating and it will require some response from the fiscal authorities and the Reserve Bank of India," said Abheek Barua, chief economist at HDFC Bank.
"So I wouldn't be surprised if there is another monetary measure on its way in the next fortnight or so, and this is likely to be a repo rate hike of about 25 basis points." The double-digit inflation figure - inflamed by a fuel price hike of about 10 per cent early this month when India cut subsidies, will also heap more pressure on a ruling coalition, which faces state and national elections in coming months.
The coalition is already struggling to unify behind a controversial nuclear energy deal with the US.
Economists said with inflation running significantly higher than anticipated, another increase was likely.
India's inflation rate was last this high in the week of May 6, 1995, when it stood at 11.11 per cent.
Energy costs account for 14.2 per cent of the WPI index and yesterday's data showed the index for fuel, power, light and lubricants rose 7.8 per cent in the week of the price rise.
Finance Minister Palaniappan Chidambaram promised action.
"This is indeed a very difficult time and we will have to take stronger measures both on the demand side and monetary side," the minister told reporters on Friday.
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