New Delhi: India’s wholesale price inflation rate rose in mid-September on higher food costs, adding to the challenge for policy makers who are focused on nurturing growth but face an anticipated sharp uptick in inflation.
The widely watched wholesale price index rose by a higher-than-expected 0.37% in the 12 months to 12 September. The annual change in the index unexpectedly turned positive last week after falling for 13 weeks, with high food prices being the principal contributor.
The food articles sub-index rose an annual 15.64%, compared with the previous week’s 15.4% rise. The worst dry spell in nearly four decades brought drought conditions to almost half of India’s districts, hurting summer crops and prompting the government to take steps to bolster supplies.
“We have seen some pick-up in base metal prices apart from food prices, which were already there for the last few weeks. We are getting to a stage where we need some monetary policy gestures,” said Abheek Barua, chief economist at HDFC Bank.
“Inflationary expectations are at play and the way to address it is to reduce liquidity starting with selective credit controls,” he said.
Last week, a deputy governor of the Reserve Bank of India (RBI) said WPI inflation could hit 6% by the end of the fiscal year in March, above the central bank’s July forecast of around 5%.
Private sector economists have said inflation could reach as high as 8% by the end of March as the base effect of last year’s surge in energy and commodities prices starts to wane.
The government and the central bank have said growth in Asia’s third-largest economy remains their principal concern.
Indian economic growth is seen slowing to about 6% in the 2009-10 fiscal year from 6.7% last year, lagging the 9% or more expansion of the past three years, although growth is expected to pick up in the next fiscal year.
RBI governor Duvvuri Subbarao earlier this month said the central bank would not unwind its accommodative monetary policy before ensuring recovery.
Economists, however, say a relentless rise in prices may accelerate a shift in priorities.
India’s economy is showing signs of recovery, including 6.1% annual growth during the June quarter and an annual 6.8% uptick in July industrial output.
The Reserve Bank of India, which left its key rates steady at its quarterly review in July, cut its main lending rate by 425 basis points between October and April to boost growth.
Private economists expect the central bank to begin retreating from easy monetary policy towards the end of the fiscal year by increasing bank reserve requirements. That would be followed by a rise in policy rates, analysts have said.
Finance minister Pranab Mukherjee has said the government is not in favour of tight monetary policy to curb inflation, as that could hurt economic growth.