Inflation moves up to 11.63%

Mumbai: Inflation based on the wholesale price index (WPI) moved up to 11.63% in the 12 months to June 21, according to government data released today.

The level is well above forecasts and the highest since the series began in 1995, raising the likelihood of an interest rate increase this month to follow two hikes in June.

An UTVi  poll yesterday had forecast inflation to come in at 11.49%. The annual inflation rate was 4.32% during the corresponding week of the previous year.

June 21 WPI for all commodities is up at 4%, WPI for primary articles is up 0.5%, WPI for manufactured goods is up 0.5%, and WPI for all food production is up 0.9%.

The data was leaked early to newspapers, sending the benchmark 10-year bond yield to a seven-year high of 8.99% in early trade as inflation topped a consensus forecast for 11.44% and is now expected to rise beyond 12% soon.

The Reserve Bank of India (RBI) raised its key lending rate twice in June, taking it to 8.5%.

Economists polled by Reuters last week expect the central bank to raise the rate, known as the repo, by another 25-50 basis points in the fiscal year to March.

“The momentum in inflation continues to accelerate and that is a worrying sign. With rising input costs, there is a lot of pressure on producers to increase output prices,” said Sonal Varma, an economist at Lehman Brothers in Mumbai.

“Given this risk of second-round effects, we expect the RBI to hike the repo rate by 25 basis points at the July policy, and the cash reserve ratio by 50 basis points in Q3 2008.”

The cash reserve ratio is the proportion of funds banks have to keep on deposit with the central bank. It is due to rise to 8.75% in two 25-basis-point stages on July 5 and July 19.


One Response to “Inflation moves up to 11.63%”

  1. Very informative yet worrying post. It was interesting to note that UTVi’s poll actually presented a more conservative number than the actual inflation figure – although they were almost perfect in their prediction. With inflation rising at such an alarming rate, fridays – when the inflation data is released, have become the most dreadful days for the finance ministry and the common man alike.

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