Business | Economy
Indian inflation accelerates to fastest in 13 years
India's inflation accelerated to the fastest pace since 1995, raising concern the central bank will increase borrowing costs for a third time this year.
- Bloomberg
- Published: 23:29 July 11, 2008
Mumbai: India's inflation accelerated to the fastest pace since 1995, raising concern the central bank will increase borrowing costs for a third time this year.
Wholesale prices rose 11.89 per cent in the week to June 28, after gaining 11.63 per cent in the previous week, commerce ministry spokesman Rajeev Jain told Bloomberg News in an interview yesterday. Economists expected an 11.75 per cent increase.
Accelerating inflation may prompt the Reserve Bank of India to add to last month's two rate increases and is a setback for the government of Prime Minister Manmohan Singh, already contending with slowing growth and waning popularity. Singh may soon face a confidence vote in parliament after his communist allies withdrew support over a nuclear accord with the US.
"Inflation has spoiled the party for the government, depriving it of the ability to claim credit for economic gains," said Prasanna Ananthasubramaniam, an analyst at Mumbai- based ICICI Securities Ltd. "Faster inflation will make the government more unpopular and force the central bank to raise rates by 50 basis points at its July meeting."
Bonds pared losses after the inflation report. The price of the benchmark 8.24 per cent note due April 2018 rebounded to 92.1 per 100 rupee face amount as of 11.08am in Mumbai, from as low as 91.8 earlier. The yield was at 9.5 per cent, compared with 9.55 per cent earlier.
Crude oil
A near doubling in the prices of oil, wheat and soybean is fanning inflation across the globe, hurting company profits. Japan's wholesale inflation rate rose to a 27-year high of 5.6 per cent in June, a report showed yesterday. Inflation in Philippines rose to a 14-year high of 11.4 per cent.
India's central bank, which next meets to review monetary policy on July 29, last month raised its benchmark interest rate twice to a six-year high of 8.5 per cent and lifted its cash reserve ratio to 8.75 per cent, to prevent money supply in the banking system from stoking inflation.
Rising energy costs have spurred inflation in India by making transportation, manufactured products and food items more expensive. Higher prices have caused Singh's Congress party to lose ground in nine of 11 state elections since January 2007. The prime minister faces polls in six more states this year and a national contest by May 2009.
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