India’s inflation slowed for a second week, beating expectations, as cuts in fuel prices and import tariffs made farm and manufactured products cheaper. The key wholesale price inflation rate slowed to 6.05% in the week ended 17 February from 6.63% in the previous week, the commerce ministry said in its weekly inflation report.
Analysts had estimated the inflation rate would be 6.25%. Inflation stayed above RBI’s tolerance level of 5% since September and the central bank may raise its key overnight lending rate next month for the second time this year to curb prices. Prime Minister Manmohan Singh’s Congress party lost two state elections this week as inflation eroded the spending power of people.
“The economy is growing above trend and inflation is high,” said Maya Bhandari, an economist at Lombard Street Research Ltd. in Mumbai. “Interest rates need to rise.”
Record economic growth, boosted by the fastest increase in bank loans in more than three decades and higher salaries, have stoked prices of agricultural and manufactured products. RBI last month unexpectedly increased the amount of cash lenders have to set aside to cover deposits for the second straight month to curb inflation.
The yield on the benchmark 8.07% note due January 2017 fell two basis points to 7.91% as of 12:20pm in Mumbai, according to the central bank’s trading system.
India lowered the price of auto fuels by as much as 4.5% effective 16 February, the second cut in three months. Finance minister P. Chidambaram this week cut tariffs on diesel and other goods in his Budget for the fiscal year starting 1 April.
The cuts were the second in five weeks after Chidambaram in January cut import duties on products ranging from sulphur to steel.