Indian inflation continues to rise at record pace

NEW DELHI - India’s inflation accelerated to the fastest pace in more than 13 years, strengthening the case for the central bank to increase borrowing costs this month.

By (Bloomberg)

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Published: Sat 5 Jul 2008, 11:34 PM

Last updated: Sun 5 Apr 2015, 12:47 PM

Wholesale prices rose 11.63 per cent in the week to June 21, after gaining 11.42 per cent in the previous week, the government said in a statement in New Delhi yesterday. The median forecast of 16 economists surveyed by Bloomberg News was for an 11.47 per cent increase.

Faster inflation has eroded the popularity of Prime Minister Manmohan Singh’s government, which is struggling to survive as its communist allies consider withdrawing their support over a nuclear deal with the US A nationwide truckers’ strike may have added to inflation.

“Miseries don’t come alone,” said Dharmakirti Joshi, an economist at Mumbai-based Crisil Limited, the local unit of Standard & Poor’s.

“The political disharmony, inflation and the truckers’ strike have disrupted the smooth functioning of the economy.”

India’s 10-year bonds fell for a fifth day, pushing yields to the highest in seven years.

The Reserve Bank of India, which next meets to review rates on July 29, last month raised its benchmark interest rate twice to a six-year high of 8.5 per cent and lifted its cash reserve ratio to 8.75 per cent, to prevent money supply in the banking system from fanning inflation.

Truckers’ strike: Soaring energy, food and commodities prices are pushing up inflation around the world and forcing central banks to raise borrowing costs amid slowing economic growth. Sweden and Indonesia raised their benchmark interest rates yesterday, as did the European Central Bank. China has increased its cash reserve ratio to a record 17.5 per cent.

More than four million heavy and light commercial vehicles stayed off the nation’s roads for two days this week to protest against taxes and rising fuel costs. The strike ended late yesterday after the government decided to roll back an increase in toll tax and promised not to raise the charge for one year, said Charan Singh Lohara, president of truckers’ union.

The government increased retail fuel prices on June 4, pushing inflation to more than double the central bank’s year- end target of 5.5 per cent.

Rising prices have caused Prime Minister Singh’s Congress party to lose ground in nine of 11 state elections since January 2007. Singh faces elections in six more states this year and national elections by May 2009.

Export ban: To contain inflation that has tripled in the past seven months, the government yesterday banned exports of corn after restricting overseas sales of food items including wheat, rice, cooking oils and pulses. India had earlier banned cement exports and imposed a tax on outgoing shipments of steel products.

“Inflation is likely to hit 13 per cent in a month,” Joshi of Crisil said. The Reserve Bank may raise the repurchase rate by 25 basis points in the July meeting and increase the cash reserve ratio, depending on the liquidity in the system, he said.

Rising energy costs have fanned inflation in India by making transportation, manufactured products and food items more expensive. Fuel, power and electricity prices rose 16.2 per cent in the week ended June 21 from a year earlier. Food costs, including bread, salt, cooking oil and tea, jumped 14.6 per cent.

Crude oil prices touched an all-time high of $145.85 a barrel on July 3, raising concern India’s import costs will surge. The South Asian nation relies on overseas crude to meet three-quarters of its needs.

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