Tue, Feb 15, 2011 - Page 10 News List

Inflation in India lowers, but rate hikes still likely


India’s inflation edged lower last month, data showed yesterday, but the central bank was still expected to continue its aggressive policy of hiking interest rates to tame prices.

Annual inflation, measured by the wholesale price index, India’s main measure for prices, fell to 8.23 percent last month from 8.43 percent the previous month, a government statement said.

Inflation has been driven mainly by soaring prices of food, such as onions that have risen 79 percent since last year, according to the latest figures.

The slight decline comes as welcome news for the government, which has been under heavy public and opposition pressure to contain prices, although inflation did not fall as much as expected by analysts.

The fall was led by a reduction in prices of wheat, pulses and sugar, but prices of vegetables were up an overall 65 percent last month from the same month last year.

The central bank expects inflation to decline to 7 percent by the end of the current fiscal year to March 31, but that is still above its comfort level of 5 percent to 6 percent.

To reduce inflation, the Reserve Bank of India has raised its key policy rates seven times in less than 12 months, making it the most hawkish central bank in Asia. It is expected to raise borrowing costs again next month.

Indian Prime Minister Manmohan Singh earlier this month described inflation as a “serious threat” to India’s economic growth and called for urgent steps to contain prices.

The government has blamed inflation on “supply-side” problems, with Singh calling for higher productivity and output to meet rapidly expanding domestic consumption as Indian incomes rise.

An increase in global prices of crude oil, India’s largest import item, has also raised new worries for the Congress-led government as it fights inflation.

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