Inflation Unexpectedly Quickens to 8.31% in India, Adding to Rate Pressure

India’s inflation unexpectedly accelerated in February, increasing pressure on the central bank to raise interest rates this week for the eighth time in a year.

The wholesale-price index rose 8.31 percent from a year earlier after an 8.23 percent jump in January, the commerce ministry said in a statement in New Delhi today. The median forecast of 20 economists in a Bloomberg News survey was for a 7.8 percent increase.

The Reserve Bank of India may increase its repurchase rate by a quarter-point on March 17, according to all 19 economists in a Bloomberg News survey, after weighing the impact of oil prices and the earthquake in Japan. India’s benchmark price gauge is almost double the central bank’s “tolerance” level.

“By no measure is the inflation rate heading back to a comfortable level any time too soon,” Vishnu Varathan, a Singapore-based economist at Capital Economics Asia) Pte, said before the release. He expects the central bank to raise rates by 25 basis points this week.

The Bombay Stock Exchange’s Sensitive Index pared gains after the report, advancing 0.8 percent to 18,316 at 12:35 p.m. in Mumbai. The yield on the 8.08 percent note due August 2022 rose five basis points to 8.1 percent. A basis point is 0.01 percentage point. The rupee strengthened 0.1 percent to 45.1775 per dollar.

Anti-Inflation Stance

Reserve Bank Governor Duvvuri Subbarao on Jan. 25 pledged to persist with an “anti-inflationary monetary stance” as he lifted the inflation forecast. The central bank’s key repurchase rate is 6.5 percent.

The wholesale-price inflation rate may be 7 percent by March 31, more than the 5.5 percent estimated earlier, Subbarao said. The RBI aims for inflation of 4 percent to 4.5 percent.

India’s inflation remains a “concern,” Finance Minister Pranab Mukherjee told reporters in New Delhi today, adding that he expects the measure to slow to a range of 7 percent and 7.5 percent by the end of March.

Manufacturing inflation accelerated to 4.9 percent in February from 3.8 percent in January, according to today’s report. Fuel inflation quickened to 11.49 percent last month, the report showed.

Pressure on inflation may ease after oil fell to a two-week low in New York on concern the earthquake in Japan will limit demand in the world’s third-largest economy. India imports three-quarters of its energy needs.

Oil Prices

Oil prices have dropped 5.6 percent since March 7. Japan was struck by its largest temblor ever recorded on March 11, shutting refineries accounting for about 29 percent of domestic processing capacity, according to Bloomberg calculations based on Petroleum Association of Japan data.

The earthquake measuring 8.9-magnitude unleashed a 7-meter (23-foot) tsunami that may have killed 10,000 people in the north of the country.

The Bank of Japan poured a record 15 trillion yen ($183 billion) into the financial system to cushion the economy from the natural disaster.

The Philippine central bank will consider the implications of the earthquake when it reviews monetary policy next week, according to Governor Amando Tetangco.

Subbarao may still have to tighten borrowing costs as growing consumer demand in Asia’s third-largest economy runs the risk of stoking inflation.

Car sales in India by companies including Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker, and Toyota Motor Corp. rose to a record in February.

Consumer demand may strengthen further after Mukherjee in his Feb. 28 budget exempted more people from paying taxes. Salaries in India this year are set to rise the most in the Asia-Pacific region, a survey by Aon Hewitt LLC showed this month. Wages are expected to grow an average 12.9 percent in 2011, compared with 11.7 percent last year, according to the survey. In China, salaries may increase 9 percent, it said.

-- With assistance from Tushar Dhara and Anto Antony in New Delhi. Editors: Cherian Thomas, Sunil Jagtiani

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.