India’s Consumer Inflation Quickens, Adding Rate Pressure

India’s consumer-price inflation quickened in March for the first time in four months, putting 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 yesterday. The median estimate in a Bloomberg News survey of 39 analysts had been for an 8.25 percent increase.

Climbing prices erode the purchasing power of about 800 million Indians who live on less than $2 a day and may 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 at the central bank 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 60.275 per dollar as of 9:16 a.m. in Mumbai today. The S&P BSE Sensex index was little changed, while the yield on the 10-year government bond due November 2023 fell to 8.91 percent from 8.95 percent yesterday.

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 yesterday.

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.

The BJP-led government will change the formula to fix minimum prices the government pays to farmers for crops such as rice and wheat, Mint newspaper reported, citing Modi at an election rally yesterday. The new formula will include the total cost of production and 50 percent profit, he said.

Wholesale Prices

Wholesale prices rose 5.7 percent from a year earlier, compared with 4.68 percent in February, the Commerce Ministry said in New Delhi yesterday. The median estimate in a Bloomberg News survey of 42 analysts was for a 5.3 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 has said. There is also a threat from less-than-normal monsoon rains due to possible El Nino effects, which affect weather worldwide and can roil agricultural markets, he has said.

India’s economic growth 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.

Before it's here, it's on the Bloomberg Terminal.