Business | Economy
Indian inflation continues to pinch despite small drop
India's inflation held near a 16-year high as floods in half the country damaged crops and disrupted food supplies.
- Bloomberg
- Published: 23:44 August 28, 2008
Mumbai: India's inflation held near a 16-year high as floods in half the country damaged crops and disrupted food supplies.
Wholesale prices rose 12.40 per cent in the week to August 16, after increasing 12.63 per cent in the previous week, the commerce ministry said in New Delhi yesterday. Economists were expecting a 12.78 per cent gain.
Heavy rains have killed at least 1,600 people in 17 states and hurt crops in major grain-producing states like Punjab, Haryana and Andhra Pradesh. That has pushed up food costs and may prompt the Reserve Bank of India (RBI) to add to its three interest- rate increases since June.
"Flooding in some parts of the country and erratic rains in some other areas is causing disruptions in the supply of food articles and driving up their prices," said Sonal Varma, an econ-omist with Lehman Brothers in Mumbai. "We expect inflation to peak at 13.5 to 14 per cent by the end of October."
Bonds rose yesterday, pushing yields to the lowest levels in almost two months. The yield on the benchmark 8.24 per cent note due April 2018 slid 11 basis points to 8.77 per cent as of 5.30pm in Mumbai, the lowest level since July 1, according to the central bank's trading system.
Slowing growth
Elevated inflation may slow the pace of economic growth. India's $912 billion economy is forecast to expand close to 8 per cent in the fiscal year that started April 1, according to the finance ministry, the weakest pace in four years.
The RBI last month raised its benchmark interest rate by a half point to a seven-year high of 9 per cent. The reserve requirement for commercial lenders was also lifted to 9 per cent from 8.75 per cent.
"The central bank may have to hike more because inflation seems to continue to rise," said Ramya Suryanarayanan, an economist at DBS Bank in Singapore.
"Economic growth is definitely going to weaken this year due to runaway inflation and because of the risks of a global slowdown."
Prices of pulses, fruits, spices, sugar and textiles rose in the week to August 16, while prices of vegetables, meat and edible oils declined, yesterday's report showed. Manufactured price inflation rose 11.02 per cent, compared with 10.91 per cent in the previous week.
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