India inflation reachs 13-month high
By Amy Yee in New Delhi
Published: March 30 2008 13:46 | Last updated: March 30 2008 13:46
The Indian government said it would sacrifice blistering economic growth in order to tame inflation as latest figures reached a 13-month high of 6.7 per cent on the back of spiralling global fuel and commodity prices.
“We are determined to curb inflation even if we have to live with slower growth,” finance minister Palaniappan Chidambaram told reporters in Mumbai on Friday.
Mr Chidambaram had last month forecast annual economic growth of 8.7 per cent for the year ending March 31, down from 9.6 per cent the previous year.
Soaring inflation is a major political concern for India’s current administration ahead of general elections next year.
“This is not good news in a year when elections are approaching,” said Dharmakirti Joshi, principal economist at Crisil in Mumbai. “Government will have to do some fire fighting to bring immediate relief.”
Wholesale price index inflation jumped to 6.68 per cent year-on-year during the week ended March 15, up from 5.92 per cent year-on-year during the week ended March 8, according to government figures.
The spike exceeded analysts’ expectations and is far above the central bank’s inflation “comfort zone” of 5 per cent.
The sharp rise in inflation virtually dashes hopes that India’s central bank will cut high interest rates. Carmakers and other industries have been clamouring for rate cuts to help revive slowing consumer demand.
The Reserve Bank of India could hike interest rates at its next meeting on April 29. But economists say that fiscal measures with swifter impact are more likely than tightening monetary policy since demand is already cooling.
“This inflation is caused more by supply constraints and global supply. It cannot be controlled by monetary policy,” said Mr Joshi of Crisil.
The finance ministry is expected to cut import duties on commodities such as steel, while clamping down on exports. Last week it reduced import duty on edible oil and has limited export of non-basmati rice.
“Large price increase portends significant government action,” said economists at Goldman Sachs. “With inflation driven by high commodity prices, the government has reduced import duties, banned exports and increased minimum export prices of certain food commodities.”
Economists also predicted that India’s policymakers would allow further appreciation of the rupee exchange rate to soften import prices.
Of the 76 basis point acceleration in headline inflation, basic metals accounted for 39 basis points of the increase, said Chetan Ahya, economist at Morgan Stanley. Fuel, power, light and lubricants contributed 13 basis points while manufactured food products contributed 6 basis points.
The Reserve Bank of India did not issue an official response to the latest inflation figures. But Rakesh Mohan, deputy governor of the RBI, separately said that for growth to flourish, “low and stable inflation is essential: high and uneven inflation enhances risk,” during a speech in Ahmedabad. |
