Inflation near 5-year low as oil, gas prices are kept unchanged

Inflation near 5-year low as oil, gas prices are kept unchanged

The country’s inflation held near a five-year low as the government subsidized fuel to protect consumers from record crude oil prices ahead of elections.

Wholesale prices rose 3.01% in the week ended 10 November from a year earlier, slower than a 3.11% gain in the previous week, the ministry of commerce and industry said on Friday. Analysts had forecast inflation at 3.2%.

Prime Minister Manmohan Singh this week appointed a panel of ministers to examine fuel costs, which haven’t been raised this year amid a near 60% increase in crude oil prices. The government does not want to allow refiners to raise prices on concern it will accelerate inflation before state and national elections.

“The comfort that one should get from low inflation is not there," said Dharmakirti Joshi, principal economist at Mumbai-based Crisil Ltd. “Non-revision of oil prices has suppressed inflation by at least 100 basis points."

Inflation in the second week of November slowed as the index of fuels remained unchanged and the index for food articles declined.

Wholesale prices rose 2.97% in the week ended 27 October from a year earlier, the lowest in more than five years.

Crude oil for January delivery was trading at $96.16 (Rs3,789) a barrel in after-hours trading on the New York Mercantile Exchange at 6:00pm in New Delhi.

At current oil prices, the country’s subsidy bill will be Rs68,640 crore this year, the petroleum and natural gas ministry estimates.

Singh’s government hasn’t raised petrol and diesel rates this year to help keep inflation down and protect the poor.

Cooking gas prices haven’t been raised since November 2004 and kerosene since April 2002.

Gujarat and Himachal Pradesh are scheduled to hold elections by next month. Analysts expect national polls may take place ahead of the May 2009 schedule because of differences on economic and foreign policy between the government and its Communist allies.

India may have to raise fuel prices if crude oil costs remain at current record levels, said Montek Singh Ahluwalia, deputy chairman of the Planning Commission, this week.

The Reserve Bank of India had on 30 October unexpectedly ordered lenders to set aside more reserves for the fourth time this year to contain inflation. “RBI may again raise the cash reserve ratio if foreign inflows continues," Joshi said.

India on Friday revised the inflation rate for the week ended 15 September to 3.51% from 3.23%. The government revises the figure after a delay of two months on additional price data.