NEW DELHI: India’s inflation accelerated to a three-month high in March, data showed yesterday, dashing hopes of interest rate cuts to revive a sputtering economy. The data was released in the midst of voting in India’s multi-phase election.
The Wholesale Price Index (WPI), India’s closest-watched cost of living monitor, jumped by nearly a percentage point from the previous month to hit a year-on-year rate of 5.7 percent in March, outstripping market forecasts of a 5.3 percent reading.
Inflation is a hugely sensitive political issue in India and the Congress government, fearing a voter backlash, has been desperate to curtail price rises which cause huge suffering for the nation’s hundreds of million of poor by eroding their buying power.
The inflation numbers reversed a declining trend that had fanned hope the central bank might be winning its war on the rising cost of living. The inflation climb means “any previously small chance of a near-term rate cut is now off the table”, said Glenn Levine, economist at Moody’s Analytics. Investment house Bank of America-Merrill Lynch said it does not expect a rate cut until next March.
Despite pleas from business to lower interest rates, the Reserve Bank of India (RBI) insists monetary policy must remain tight to tame inflation and ensure long-term growth.
The RBI has raised its key lending rate three times since last September. It now stands at eight percent.
March inflation, the highest since December, was spurred by across-the-board price increases in food, fuel and manufacturing. Rice was 12.6 percent costlier than a year earlier, vegetables were up 8.6 percent while fuel was 11 percent more expensive.
India is gripped by what many economists describe as “stagflation” — elevated inflation and sluggish expansion.
For two years the economy has been growing at below 5 percent, half the near double-digit levels of India’s boom years that economists say are needed to create jobs for the nation’s vast young population.
Separate figures showed consumer price inflation (CPI), compiled from a smaller goods basket than the benchmark WPI, jumped to 8.31 percent in March from a year earlier from 8.1 percent in February.
CPI now is also being closely tracked by the central bank.
The inflation spurt followed figures last week showing industrial production slid by an unexpected 1.9 percent in February from a year earlier. The disappointing data underlines the huge challenges facing the next government in restoring growth.
Inflation could rise further if El Nino strikes, say economists, warning the weather phenomenon could wreak havoc with the annual monsoon rains and damage summer crops. El Nino has in the past led to both devastating floods and droughts in India.
“Indian inflation will prove stubborn from here,” said Miguel Chanco, analyst at Capital Economics, “even when monetary easing does begin, we think
rate cuts are unlikely to be aggressive.”AFP
