Tue, May 17, 2011 - Page 10 News List

India WPI up faster than expected

Bloomberg

Supporters of India’s main opposition Bharatiya Janata Party pull a vehicle with the help of ropes to protest recent hike in gasoline prices during a demonstration in New Delhi yesterday.

Photo: Reuters

Inflation in India expanded at a faster-than-expected pace last month, adding pressure on the central bank to extend interest-rate increases as the biggest rise in gasoline tariffs in three years threatens to intensify price gains.

The wholesale-price index (WPI) rose 8.66 percent last month from a year earlier, the Ministry of Commerce and Industry said in a statement in New Delhi yesterday. The median of 19 estimates in a Bloomberg News survey was for an 8.5 percent climb. Prices advanced a revised 9.1 percent in March, according to data compiled by Bloomberg.

The Reserve Bank of India pledged to maintain the fight against inflation after boosting borrowing costs this month for the ninth time since the middle of March last year, the fastest pace of rate rises among major Asian economies. The nation increased the cost of gasoline as much as 8.5 percent yesterday, triggering protests by the main opposition party.

“Inflation will further accelerate after hikes in oil prices, meaning the central bank’s focus will have to be on tightening to control inflation,” said Rupa Rege Nitsure, a Mumbai-based economist at Bank of Baroda. “There is going to be no respite from inflation this year.”

The ministry announced March’s revision after the release, saying the WPI has been adjusted from April 2004 after errors were discovered.

Reserve Bank of India Governor Duvvuri Subbarao said on May 3 inflation would stay at an “elevated level” until September as he raised the repurchase rate by half a percentage point to 7.25 percent. Counterparts from China to South Korea have also extended rate increases as Asia fights prices pressures spurred by elevated oil and food costs.

Monetary tightening in India will slow growth this year and help ease inflation to 6 percent “with an upward bias” by March 31 next year, Subbarao said.

India’s economy could expand “around 8 percent” in the year through March from 8.6 percent in the previous 12 months, he said.

For now, indicators such as industrial production and credit expansion show that consumer demand is holding up.

Industrial output grew 7.3 percent in March from a year earlier, the fastest pace in five months, the ministry said on Thursday. Commercial credit given by lenders including ICICI Bank Ltd, the nation’s biggest private bank, rose 22 percent from the previous year as of April 22, more than the 19 percent rate prescribed by the central bank.

Inflation will accelerate further as the government raises fuel prices, said Madan Sabnavis, an economist at Mumbai-based CARE Ratings, a credit rating company.

Indian Oil Corp, the nation’s largest state-run refiner, raised the price of gasoline by 5 rupees (US$0.11) a liter to 63.37 rupees in New Delhi. That’s the biggest increase since June 2008. Officials are trying to limit losses at state-run refiners and help the government cut fuel subsidies.

Activists from the opposition Bharatiya Janata Party blocked traffic in many parts of New Delhi yesterday to protest the increase, the Press Trust of India reported.

The end of elections last week in five provinces gives Indian Prime Minister Manmohan Singh’s government room to ease fuel-price controls on state refiners.

Global crude oil prices are up about 40 percent in the past 12 months. Fuel prices in India gained 13.32 percent last month from a year earlier, compared with a 12.92 percent advance in March, yesterday’s report showed.

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