AFP: Indian inflation rises to nearly 9%

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NEW DELHI — India’s inflation unexpectedly accelerated in March to nearly nine percent, data showed on Friday, piling pressure on the central bank to be more aggressive as it battles to tame price rises.

Annual headline inflation, measured by the wholesale price index, India’s main price measure, leapt to 8.98 percent in March from 8.31 percent the previous month, stoked by higher food, fuel and manufacturing costs.

The figure was far above market expectations of 8.30 percent and the highest of any major Asia-Pacific economy.

The commerce ministry also sharply revised upwards January’s inflation reading to 9.35 percent from 8.23 percent earlier.

“With inflation numbers of this magnitude, especially core inflation, the Reserve Bank of India (RBI) may feel compelled to be a bit more aggressive next time around,” said HSBC chief India economist Leif Lybecker Eskesen.

India released the data on the same day China revealed that inflation in the world’s second-biggest economy had soared to a 32-month high.

The Asian Development Bank warned last week that controlling inflation was the region’s “top priority” as strong growth, turmoil in the Middle East and Japan’s nuclear crisis drive up food and oil prices.

The RBI has raised its key policy rates eight times since March 2010, making it the most hawkish central bank in Asia.

“Inflation is the most important short-term problem,” said Montek Singh Ahluwalia, deputy head of India’s Planning Commission, who urged the RBI to use “all the flexibility” at its disposal.

Price rises are a major political headache for the embattled Congress party-led government, which is also reeling from a string of corruption scandals.

Poorer households, the backbone of the party’s support, have been especially hard hit by inflation which is a traditional lightning rod for political discontent in the country of 1.2 billion.

Fuel and power prices climbed 12.92 percent while food rose 9.47 percent, the commerce ministry data showed.

Economists expect the central bank to hike rates again at its next meeting on May 3, even with recent data showing industrial output slowing sharply as a result of monetary tightening.

“Today?s inflation number cements the case for a hike at next month?s meeting,” said Credit Suisse economist Robert Prior-Wandesforde.

Bank policymakers have sought to minimise the risks to economic growth by raising rates in quarter point steps, but economists now say it may move more boldly with a possible half a percentage point rise in May.

Ahluwalia warned high interest rates could derail the government’s nine percent growth target for this year by slowing investment and consumption.

“We may not hit nine percent,” he told reporters.

Economists now say inflation, initially fuelled by spiralling food prices, has spilled over into the general economy, pushing up wages and other costs.

Asian economies including South Korea, China, Indonesia and Taiwan are all battling inflation pressures with global prices of crude oil riding at $122 and other commodities costs rising.

China reported Friday 2011 first-quarter growth slowed slightly to 9.7 percent while inflation hit 5.4 percent year-on-year in March — its highest since July 2008.
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