MUMBAI -
Spurred by a sharp increase in the prices of food items, inflation in
India
has touched a 10-month high, adding to the government's list of woes.
The wholesale price index inflation for the week ending Feb. 23 stood at
5.0%, compared to 4.9% in the previous week, the Ministry of Commerce and
Industry said in New Delhi Friday. The central bank's target is to keep
inflation below 5% for the year, but a spike in the prices of food and oil
is pu****ng the numbers up. Last month, the government let state oil
companies marginally increase the prices of gasoline and diesel, after
having held them steady since June 2006 despite sharply rising world
prices
for crude. (See: " India Raises Ceiling On Gasoline Prices, A Little")
"I wasn't expecting inflation to be so high. Only reason is because food
article inflation jumped from 2.9% to 4.8% for the period," said Indranil
Pan, chief economist at Kotak Mahindra Bank. "Such increases are usually
one-off, and we could see some amount of moderation in the next few
weeks."
Limited supply and steadily growing demand is leading to rising food
prices,
putting pressure on the Congress Party-led coalition, which faces critical
state and national elections before its term ends in 2008. An estimated
one-third of agricultural produce goes to waste because of a lack of
proper
storage and trans****tation in India. To make matters worse, growth in
agricultural productivity slowed down to 3.2% for the December quarter,
after a 3.7% increase in the previous three months, the government said.
In January, the Reserve Bank of India held interest rates steady, citing
the
pressures from rising inflation. "The inflation numbers vindicate the
judgment call taken in the previous policy. The bank has judiciously given
more im****tance to tackling inflation than spurring growth," commented
Pan.
For the quarter ending in December, GDP growth was 8.4%, lower than the
8.64% growth posted in the equivalent period in 2006. Finance Minister
Palaniappan Chidambaram said the government's targets were to maintain
economic expansion at 9% and inflation at 4%.
Economists aren't expecting the Reserve Bank to cut interest cuts soon, at
least not at its next meeting in April. "But we aren't looking at interest
rates hardening either because growth is slowing down," Pan observed.
http://www.forbes.com/markets/2008/03/07/india-wholesale-inflation-markets-econ-cx_rd_0307markets10.html
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