Kartik Goyal and Cherian Thomas/Bloomberg
New Delhi: The annual inflation accelerated more than expected, remaining above the central bank’s target for an 18th week, due to higher prices for fruit and vegetables.
The key wholesale price inflation rate was 6.09% in the week ended 7 April, from 5.74% in the previous week, the ministry of commerce and industry said. Analysts were expecting 5.8%.
Inflation is being fuelled by farm costs, which are rising at twice the pace of prices of manufactured products.
Prospects of sufficient monsoon rainfall this year, as predicted by India’s weather office on 19 April, have raised hopes of an increase in farm production this year.
“My expectation is inflation will still hover around 5.75% next week,” finance minister P. Chidambaram said on 20 April. “Future moderation will depend upon wheat arrival and wheat procurement.”
The Reserve Bank of India (RBI) may leave interest rates unchanged in its next monetary policy announcement on 24 April after increasing its key overnight lending rate to a five-year high.
“Inflation is being driven by supply-side constraints,” said N. R. Bhanumurthy, an economist at the Institute of Economic Growth. “Raising interest rates won’t solve the problem of shortages in food supply. Rates have risen aggressively and demand for loans is beginning to slow.” India’s 10-year bond yield rose two basis points to 8.07% after the inflation announcement.
RBI governor Y. Venugopal Reddy on 30 March raised banks’ reserve requirements for the third time since December and the key overnight interest rate for the sixth time in the past 15 months to curb record lending and stem increases in manufactured product prices.
The government on 20 April revised the inflation rate for the week ended 10 February to 6.52% from 6.63%.