Inflation at 3.2% as oil price hike on hold

Inflation at 3.2% as oil price hike on hold

New Delhi: Inflation held near a five-year low as the government capped retail prices of petrol and diesel to protect consumers from near record high oil costs.

Wholesale prices rose 3.21% in the week ended 17 November from a year earlier, faster than a 3.01% gain in the previous week, the Union ministry of commerce and industry said on Friday.

Analysts had forecast inflation at 3.12%.

Inflation has held below the Reserve Bank of India’s (RBI) 5% target for five months. Still, price pressures may be reignited as the government may have to increase retail fuel costs if crude oil rises further, according to RBI.

“We expect inflation to remain below 5% by year-end," said Prasanna Ananthasubramaniam, a fixed-income analyst at ICICI Securities Ltd. “Inflation is well below the target due to non-revision in oil ­prices."

India, which imports almost three-quarters of its energy needs, hasn’t raised fuel costs this year, limiting the impact on inflation after crude prices gained 49% this year.

Asia’s third largest economy will have to raise domestic prices if crude oil, headed for the biggest advance since 1999, extends gains, RBI said in a 27 November report.

“Commodity prices are high, they do have a bearing on inflation, but monetary and fiscal steps have been taken and we stand ready to take further steps, if necessary," finance minister P. Chidambaram said on Friday.

“But at the moment, going forward, I think, things will remain more or less at the current level," He added.

Crude oil for January delivery was trading at $91.02 (Rs3,613) a barrel in after-hours trading on the New York Mercantile Exchange at 3.14pm India time. At current oil prices, India’s subsidy bill will be Rs68,640 crore this year, the oil ministry estimates.

The Union government caps petrol and diesel rates to help keep inflation down and protect the poor, who make up half the country’s 1.1 billion people. Cooking gas prices haven’t been raised since November 2004 and kerosene since April 2002.

“High and volatile crude oil prices pose a major risk to domestic price stability," RBI said in the report.

The government doesn’t want to allow Indian refiners to increase prices on concern it will spur inflation before state and national elections. The delay in raising fuel prices may adversely affect the financial performance of India’s oil firms, the central bank said.

Gujarat and Himachal Pradesh are scheduled to hold elections by December. 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 main Communist allies.

India on Friday revised the inflation rate for the week ended 22 September to 3.51% from 3.42%.

The government revises the figure after a delay of two months on additional price data.