India’s Consumer Inflation Quickens, Adding Rate Pressure

Photographer: Dhiraj Singh/Bloomberg

Workers sit and lie on stacked bags of sortex rice during their lunch break at a warehouse in a wholesale market in Mumbai. Close

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Photographer: Dhiraj Singh/Bloomberg

Workers sit and lie on stacked bags of sortex rice during their lunch break at a warehouse in a wholesale market in Mumbai.

India’s consumer-price inflation quickened in March for the first time in four months, keeping pressure on the central bank to keep interest rates elevated.

The consumer-price index rose 8.31 percent from a year earlier, compared with a revised 8.03 percent in February, the Central Statistics Office said in New Delhi today. The median estimate in a Bloomberg News survey of 39 analysts was for an 8.25 percent increase.

Surging price pressures erode the purchasing power of about 800 million Indians who live on less than $2 a day, and could hurt the Congress party’s effort to extend its 10-year rule in elections ending May 16. Elevated inflation has prompted Reserve Bank of India Governor Raghuram Rajan to raise the benchmark rate 75 basis points since taking over the Reserve Bank of India in September.

“The RBI is concerned about inflation and there’s no doubt it will keep rates on hold for the rest of 2014,” said Prasanna Ananthasubramanian, a Mumbai-based economist at ICICI Securities Primary Dealership. If the new government helps the central bank by controlling food prices the following year, more rate increases may not be needed, he said.

To curb inflation, Rajan has raised the benchmark repurchase rate to 8 percent from 7.25 percent since September. He left borrowing costs unchanged in the last review on April 1 and said further tightening isn’t anticipated if consumer-price gains stay on path to hit 8 percent in January 2015 and 6 percent a year later.

Food, Clothing

The rupee weakened 0.1 percent to 60.2325 per dollar in Mumbai. The S&P BSE Sensex (SENSEX) index slid 0.6 percent. The yield on the 10-year government bond due November 2023 rose to 8.95 percent from 8.94 percent on April 11. The markets were closed yesterday for a local holiday.

Food prices rose 9.1 percent in March from a year earlier and those of clothing, bedding and footwear increased 9.03 percent, the data showed today.

Front-running prime ministerial candidate Narendra Modi will create a price stabilization fund to rein in inflation, his Bharatiya Janata Party said in its manifesto published April 7. Opinion polls mostly predict the BJP will win the most seats while falling short of a majority, as voters punish the Congress for price pressures, slowing growth and graft scandals.

Wholesale prices rose 5.7 percent from a year earlier, compared with 4.68 percent in February, the Commerce Ministry said in New Delhi earlier today. The median estimate in a Bloomberg News survey of 42 analysts was for a 5.30 percent increase.

The next policy review is due June 3. Risks to inflation arise from guaranteed prices for farm products, higher energy costs and government spending on subsidies, Rajan said. He added there’s also a threat from less-than-normal monsoon rains due to possible El Nino effects, which affect weather worldwide and can roil agricultural markets.

India’s economic growth still remains subdued as a government report last week showed industrial production unexpectedly shrank 1.9 percent in February from a year ago, while exports fell 3.2 percent to $29.6 billion last month.

For Related News and Information: Rajan Leaves India Key Rate Unchanged as Inflation Eases MORE: India Factory Output Unexpectedly Contracts Most Since May Modi’s BJP Pledges to Reduce India Inflation, Protect Cows

To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net Jeanette Rodrigues

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