New Delhi/Dubai: A day after the opposition Bharatiya Janata Party made it the key agenda of its election manifesto, India’s inflation accelerated to nearly the fastest pace in more than three years, maintaining pressure on the central bank to do more to restrain prices after squeezing money supply last week.
Wholesale prices rose 7.33% in the week ended 12 April from a year earlier, after gaining 7.14% in the previous week and 7.41% the week before, the ministry of commerce and industry said in New Delhi on Friday. Economists had expected a 7.38% increase.
The central bank may introduce more measures to contain inflation in its 29 April announcement of monetary policy, finance minister Palaniappan Chidambaram has said. Prime Minister Manmohan Singh, facing general elections due next year, said on Friday the government will take all possible steps to curb inflation, including increasing the procurement of foodgrain.
“The pressure is mounting on the policymakers, with elections approaching, to moderate inflation and maintain credibility in the fight against prices,” said Robert Prior-Wandesforde, an economist at international lender HSBC Group Plc. in Singapore.
Higher food and energy costs are stoking inflation across the region. Singapore’s prices jumped the most in 26 years in March, Japan’s rose at the fastest pace in a decade, and inflation in Australia topped 4% for the first time in seven years. Vietnamese consumer prices rose in April at the fastest pace since at least 1992.
Yields on India’s benchmark 10-year government bond held near the highest since June after the inflation report. The yield on the benchmark 8.24% note due April 2018 slipped 3 basis points to 8.15% at the 5.30pm close in Mumbai, according to the central bank’s trading system. The price rose 0.19, or 19 paise per 100 rupee face value, to 100.58. A basis point is 0.01 percentage point.
The Reserve Bank of India on 17 April raised the so-called cash reserve ratio to a seven-year high of 8% from 7.5%. The move reduces the supply of money in the financial system by forcing commercial banks to park more money with the central bank.
Price increases may reach 8%, prompting the central bank to raise borrowing costs, starting with a 25 basis-point increase in its repurchase rate on 29 April, according to Prior-Wandesforde.
Inflation in India has doubled in the last four months, prompting the government to ban commodities exports and scrap import duties to safeguard domestic supplies and tame prices.
Prime Minister Singh also persuaded Indian steel makers, including Tata Steel Ltd and Steel Authority of India Ltd, the nation’s largest state-run maker of the metal, to refrain from taking advantage of a global surge in costs and keep their prices on hold this month.
Profit margins at JSW Steel Ltd, India’s third biggest producer, have come under pressure because the company is holding prices, its vice-chairman Sajjan Jindal said on 21 April.
Commerce and industry minister Kamal Nath said in Dubai on 24 April that the government will intervene to bring down steel prices, but would first wait to see if producers do it on their own. “Let’s see. If the steel companies do not do what they should be doing (reducing prices), then the government will do what it should be doing,” he said.
(PTI contributed to this story.)