India inflation at 3-year high

NEW YORK — India’s inflation held near a three-year high, buttressing expectations the government may announce more measures this month to tame runaway prices.

By (Bloomberg)

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Published: Fri 18 Apr 2008, 11:18 AM

Last updated: Sun 5 Apr 2015, 11:40 AM

Wholesale prices rose 7.14 per cent in the week ended April 5 from a year earlier, after gaining 7.41 per cent in the previous week, the Ministry of Commerce and Industry said in a release issued in New Delhi yesterday. Economists had expected a 7.23 per cent increase.

Finance Minister Palaniappan Chidambaram yesterday said the government will act against cartels and is prepared to sacrifice revenue to help contain price gains. Faster inflation, fuelled by soaring commodity and food costs, will “impede economic growth” and slow poverty reduction, according to Prime Minister Manmohan Singh.

“India will feel the pinch more as it relies on imports of commodities,” said Dharmakirti Joshi, an economist at Mumbai- based Crisil Ltd., the local unit of Standard & Poor’s. “Going forward, monsoon rains will hold the key to local food grains production and prices.”

The yield on India’s benchmark bonds traded near the highest since June after the inflation data was released. The yield on the 7.99 per cent note due July 2017 rose 2 basis points to 8.10 per cent as of 12:05 p.m. in Mumbai.

India’s monsoon rains are expected to be sufficient this year for farmers to plant rice, wheat and oilseeds, Science and Technology Minister Kapil Sibal said yesterday. That may reduce the nation’s dependence on imports and help stave off pressure on global food prices, which have caused social unrest in 33 countries from Mexico to Yemen.

Indian lawmakers, including the communist allies of the Congress-party-led coalition government, held a protest demonstration in parliament on April 15 and forced the legislature to stop work for the day.

Inflation is being fuelled by the increase in international prices of crude oil, food grains, edible oils and other commodities together with an increase in aggregate demand, Chidambaram said.

India plans to import 1 million metric tonnes of edible oils to curb prices as demand rises amid a shortfall in the domestic crop, Agriculture Minister Sharad Pawar said yesterday. The government will also import more pulses to cool prices.

“As long as we are a large importer, we will be affected by the world trends,” Chidambaram said. India is the biggest buyer of vegetable oils after China. Asia’s third-largest economy also depends on crude oil from overseas to meet three- fourths of its energy needs and imports fertilisers.

“The pressure on prices is not likely to ease off due to the spurt in the global prices of crude oil, palm oil and other commodities,” Crisil’s Joshi said.

Oil climbed to $115.21 a barrel in New York, the highest since futures began trading in 1983. Higher crude oil prices forced Indian Oil Corp., the nation’s biggest refiner, and its state-run counterparts to raise jet fuel prices for April by 13 per cent, or Rs6,536.35 ($162) a kilolitre to Rs55,191.58, on March 31.

Still, Indian Oil is losing $80 million a day as the government controls retail prices of gasoline and diesel and forces state-run companies to sell fuels below cost, Chairman Sarthak Behuria said April 14.

The level of inflation is unacceptable and the central bank will announce a response in its April 29 monetary policy statement, Governor Yaga Venugopal Reddy said April 15.

Reserve Bank of India Governor Reddy has raised the cash reserve ratio, or the proportion of deposits commercial lenders need to place with the central bank, five times since December 2006. He has lifted the central bank’s key policy rates nine times since October 2004 to check inflation.

“Maintaining the status quo on interest rates would be maintaining a tight monetary policy,” Joshi said. “The central bank may raise the cash reserve ratio.”

The Indian government on its part has scrapped import taxes on edible oils, used mostly in cooking, and maize and banned exports of rice, pulses and cement in the last two weeks to check prices. The Cabinet committee on prices will take more measures to arrest inflation, Chidambaram said April 15.

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