Business | Economy
India's inflation hits new 13-year high
Analysts feel central bank has no option but to follow up rate hikes with further tightening.
- Reuters
- Published: 00:04 June 28, 2008
New Delhi: India's annual inflation rate jumped to 11.42 per cent in mid-June, its highest in more than 13 years, and analysts said yesterday the central bank could follow up two rate increases this month with more policy tightening.
The wholesale price index rose to 11.42 per cent in the 12 months to June 14, its highest reading since annual numbers in the current series became available in April 1995, data showed. Inflation rose from 11.05 per cent a week earlier, and topped a median forecast of 11.18 per cent in a Reuters poll.
"Inflation will remain in double digits until the end of the calendar year. In order to reinforce its policy stance, the RBI [Reserve Bank of India] will hike rates in the course of the year," said A. Prasanna, analyst with ICICI Securities. "We expect inflation to head higher in the coming months and peak somewhere between 12 to 13 per cent." Inflation spiked into double digits after state-set fuel prices were increased by about 10 per cent in early June.
The RBI on Tuesday raised its key lending rate by 50 basis points to 8.5 per cent, its highest in six years, and hiked banks' reserve requirements, also by 50 basis points, in an aggressive move to combat inflation.
The latest rise in the inflation index was driven by a 3.6 per cent rise in mineral prices, as well as increases in costs of some food articles, manufactured products and energy.
"The way we calculate inflation, even if prices completely stabilise now we will have double-digit inflation for some time," Subhashis Gangopadhyay, adviser to Finance Minister P. Chidambaram, said.
The central bank said on Tuesday that higher energy prices were no long a temporary phenomenon, and said overall demand pressures were strong.
"I think it is set to cross 12 per cent soon. Inflation has been continuously going up and it looks like we are yet to see the peak," said Dharmakirti Joshi, principal economist at Crisil, a ratings agency.
"Even today, inflation is latent because increases in fuel prices have not kept pace with high oil prices."
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