India inflation accelerates, rate cut hopes dashed
India's inflation accelerated in March to a three-month high, data showed on Tuesday, dashing hopes of an interest rate cut to boost the struggling economy.business Updated: Apr 15, 2014 15:39 IST
India's inflation accelerated in March to a three-month high, data showed on Tuesday, dashing hopes of an interest rate cut to boost the struggling economy.
The Wholesale Price Index (WPI), the closest watched cost-of-living monitor, jumped by almost a%age point from the previous month to hit a year-on-year rate of 5.7% in March.
The data came in the midst of voting in India's multi-phase election whose results are due in mid-May. A new opinion poll released late on Monday predicted the opposition Hindu nationalist opposition and its allies would win a clear parliamentary majority.
These numbers reversed a declining trend and mean "any previously small chance of a near-term rate cut is now off the table completely," said Glenn Levine, senior economist at Moody's Analytics.
Despite pleas from business to allow interest rates to fall, the central bank insists subduing inflation is vital to sustained growth.
The Reserve Bank of India has raised its benchmark lending rate three times since last September.
The March inflation rate was the highest since December, spurred by across-the-board increases in food, fuel and manufacturing prices.
The cost of rice was up 12.6% in March from a year earlier while vegetable prices climbed 8.6%. Fuel prices jumped 11% from a year earlier.
Fearing a voter backlash, the scandal-tainted Congress-led government has been desperate to tame inflation, which causes huge suffering among India's hundreds of million of poor voters.
The WPI rise took inflation back up above the central bank's so-called five% "comfort" level and outstripped market forecasts of a 5.3% reading for March.
India is gripped by what many economists have described as "stagflation" – high inflation and weak economic expansion.
For the past two years, India's economy has been growing at below 5% – almost the rate notched up when the economy was booming.
Consumer price inflation (CPI), compiled from a smaller goods basket than the benchmark WPI, now is also being closely tracked by the central bank. Figures for March's CPI, which has been hovering near double-digits, were due later on Tuesday and expected to also show a rise.
The latest inflation data comes on the back of other weak macroeconomic figures.
Late last week, India's industrial production slid by an unexpected 1.9% in February, underscoring the huge economic revival challenge facing the new government that emerges after the elections.
The BJP, led by conservative hawk Narendra Modi, has pledged creation of a price "stabilisation" fund to combat inflation and the establishment of special courts to try those who hoard goods and drive up prices.