India WPI hits 3-month high
new delhi — India’s wholesale price inflation hit a three-month high in March, snapping an easing trend that will give the central bank less scope to support the economy amid fresh signs of slowdown.
A pick-up in inflation, coupled with a slump in industrial production and merchandise exports and the risk of less-than-normal monsoon rains this summer, calls into question assumptions that the worst is over for Asia’s third-largest economy.
The wholesale price index, or WPI, long regarded as India’s main inflation measure, rose a much faster-than-expected 5.70 per cent last month from a year earlier, on higher food, fuel and manufacturing costs.
It was the quickest pace since December 2013 and snaps a threemonth easing trend.
The rise compared with a 5.30 per cent increase forecast by economists in a Reuters poll. In February, wholesale prices, rose 4.68 per cent, their slowest pace in nine months.
The reading for January WPI inflation was also revised up to 5.17 per cent from 5.05 per cent earlier.
Radhika Rao, an economist at DBS Bank, reckons the data has raised the odds for a significant jump in consumer price data, which was due at 1200GMT on Tuesday.
Retail inflation was expected to have quickened to 8.19 per cent in March from a 25-month low of 8.10 per cent a month ago, according to the median forecast of a Reu
ters poll. That will be a worry for the cen- tral bank which aims to bring down retail inflation to six per cent by January 2016.
After raising lending rates three times since last September, the Reserve Bank of India, or RBI, left its policy repo rate unchanged at eight per cent this month.
“The RBI is likely to stay concerned on the inflation outlook and stick to the tight policy stance,” Rao said. “Policy bias will be for further rate hikes in the second half of FY14/15 when the potential El Nino development and impact on southwest monsoon become more apparent.”
India’s 10-year benchmark bond yield jumped 3 basis points to 9.03 per cent after the WPI data.
India has been battling a prolonged spell of high inflation and low growth.
While economic growth has almost halved to below five per cent for the past two years, the worst slowdown for the South Asian nation since the 1980s, retail inflation has been averaging around 10 per cent.
A sharper-than-expected cooling in vegetable prices in the past three months had raised hopes of breaking out of that spell. But recent unseasonal hail and heavy rains in parts of the country have damaged crops and driven up food prices again. —