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| Inflation accelerates in May |
| May inflation accelerates on manufacturing prices; benchmark bond yield rises 3 basis points after data; rate hike seen on 16 June
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| INDIA
, 14-June-2011
8:1:35 AM |
| Country’s inflation accelerated faster than expected in May, with higher manufacturing prices offsetting slower growth in fuel and food costs and adding pressure on the central bank to lift interest rates this week despite signs of economic slowdown.
The wholesale price index , the main inflation gauge, rose an annual 9.06% in May, above the median forecast for an 8.70% rise in a Reuters poll and the April figure of 8.66%.
“The big surprise is mainly because of the sharp increase in manufacturing prices which implies that core inflation is picking up. This cements the case for a 25 basis points rate hike on Thursday,” said Nomura economist Sonal Varma.
Headline inflation for March was revised up to 9.68% from an earlier reported 9.04%, continuing a recent trend of sharp upward revisions.
Annual manufacturing inflation in May was 7.27%, up from 6.18% in April, while annual fuel price inflation eased to 12.32% from 13.32% in April despite an increase in domestic gasoline prices in mid-May.
Sluggish investment, which was essentially flat in the March quarter on rising rates and slow government approvals of big projects after growing an annual 7.8% in the previous three months, has exacerbated tight industrial capacity.
Consumer demand, meanwhile, eased more slowly, growing at 8% in the March quarter from 8.6% on an annual basis in the previous quarter.
Fuel inflation has remained elevated as global hovers around $120 per barrel, which may prompt New Delhi to raise prices of diesel, cooking gas and kerosene, which would be politically unpopular in a country where nagging inflation has prompted protests and put the ruling Congress party on the defensive.
“The number is much higher than expected and a breach of the 9% mark without a diesel price revision and in a month when global commodity prices were softer highlights the underlying inflationary pressure in the economy,” said Anubhuti Sahay, economist with Standard Chartered Bank.
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