India's inflation rate rose to 7.55% in May, up from 7.23% in April, adding to a flurry of bad data for an economy that US-credit rating agency Moody's on Thursday described as one facing "stagflation."
"India's economy is in stagflation, with notably weaker growth but inflation still stubbornly high," said Glenn Levine, senior economist, Moody's Analytics.
Stagflation, a term first used in British Parliament by Lain Macleod in 1965, refers to an economic situation characterised by flat income growth, persistent high prices and growing unemployment over a sustained period of time.However, in India growth has slowed but not stagnated.
The government on Thursday raised the minimum support prices of paddy and pulses by 16% and 37% respectively. This, along with the possibility of below-normal monsoons poses the threat of worsening food inflation, already at 10.74% in May.
"I am confident that range of inflation would be around 6.5-7.5% throughout the year," said finance minister Pranab Mukherjee. "I hope if monsoon is quite good, then it would be possible that this type of pressures would be sorted out."
Core inflation or prices of goods other than food and fuel ticked up to 4.9% in May from 4.8% in April, suggesting that manufacturers may not have benefitted from lower global commodity prices due to a depreciating rupee.
Moody's said that high inflation has added to the RBI's "headache" in slashing rates.