Inflation below Reserve Bank's target for sixth month in a row

Filed on December 29, 2007

NEW DELHI — India’s inflation held below the central bank’s year-end target for the sixth month as the government capped retail gasoline and diesel prices to protect the poor.

Wholesale prices rose 3.45 per cent in the week ended Dec. 15 from a year earlier, slower than the previous week’s 3.65 per cent gain, the Ministry of Commerce and Industry said yesterday in New Delhi. Analysts had forecast inflation at 3.67 per cent.

India hasn’t increased retail fuel prices so far this year even as crude oil costs surged 60 per cent. The Reserve Bank of India, which wants to keep inflation below 5 per cent this year, expects price pressures may be reignited as the government will have to increase retail fuel costs if crude oil rises further.

“Inflation is likely to rise in the coming months due to the expected increase in oil prices,” said N.R. Bhanumurthy, an economist at New Delhi-based Institute for Economic Growth. “However, there is no doubt that the Reserve Bank will succeed in curbing inflation within the 4 per cent to 4.5 per cent band.”

India, which imports almost three-quarters of its energy needs, may raise gasoline and diesel prices in January after a meeting of a group of ministers, the Press Trust of India reported, citing India’s Oil Secretary M.S. Srinivasan.

Inflation in the second week of December slowed as the index of fuels, with 14.2 per cent weight in the inflation basket, remained unchanged and the index for manufactured products declined.

Growth rate

The slowdown in prices will help Prime Minister Manmohan Singh sustain the fastest pace of economic growth in 60 years and the central bank to contain price gains.

The Reserve Bank is scheduled to meet in the last week of January to review interest rates. The central bank has lifted its benchmark interest rate nine times since October 2004 to fight inflation.

The index of manufactured products, which contributes 63.75 per cent to inflation, grew 3.58 per cent in the week from a year earlier, the slowest pace since September, 2006.

India, Asia’s third-largest economy, has expanded at more than 9 per cent since April 2005, making it the fastest after China among the world’s top 15 economies. Singh’s government wants to accelerate growth to a 10 per cent pace by 2012.

Indian policy makers have succeeded in curbing inflation, which reached a more than two-year high of 6.69 per cent in January, by capping retail fuel prices to protect the poor, who make up half the country’s 1.1 billion people.

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