Indian inflation eases in September

| October 14, 2011

Figures today revealed India’s wholesale price inflation eased to annual rate of 9.72% last month, down from August’s rate of 9.78%.

However, the rate is still significantly above the central bank’s target of between 4% and 5% and represented the tenth consecutive month that inflation has been above the 9% mark.

Stubbornly high inflation has led analysts to expect the central bank to lift interest rates further to curb inflation in a thriving economy.

The Reserve Bank of India (RBI) has raised its core interest rate 12 times since March 2010.

A further hike is expected at the next meeting on 25 October.

Inflation reached a two-year high earlier this year of 10.16%, after food, fuel prices and manufactured goods surged – the highest among the Group of 20 leading nations.

The RBI has previously said one of its main priorities is to bring down inflation, however, a senior Government official believes inflation will stay between 9-10% this year.

Annual food inflation has surged, causing major problems for the 450 million people who live below the poverty line in the country.

Economists say the RBI has a difficult task to bring inflation down amid signs of slowing growth.

It is currently the world’s second fastest-growing major economy, behind China, after posting growth of 7.7% in the second quarter – albeit, this was slower than the 8.8% expansion in the same period a year earlier.

The Government is forecasting growth of 8.2% for the fiscal year that ends next March.

Prime Minister Manmohan Singh has previously said inflation is a “serious threat” to the country’s growth.

Earlier this week, Duvvuri Subbarao, India’s central bank governor, said: “We are deeply sensitive in making India a low interest-rate regime but that will take time. First, we need to bring inflation down in order to bring interest rates down.”

Meanwhile, the country’s weak currency is adding to inflationary pressures.

The currency has lost 6.5% against the dollar in the previous quarter – making it the worst performer in Asia; a depreciating rupee threatens the price of imported goods.

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