Rising onion costs send India inflation to 7-month high

October 14, 2013
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The cost of onions has soared/AFP
The cost of onions has soared/AFP
MUMBAI, Oct 14 – A four-fold surge in the cost of onions helped push Indian inflation to a seven-month-high in September, data showed Monday, fuelling expectations of another interest rate hike as authorities struggle to get the economy back on track.

The Wholesale Price Index hit 6.46 percent last month, from 6.10 percent in August — and much higher than analyst forecasts of 6.0 percent — driven by surging vegetable and fuel prices.

“Rising input costs have pushed up core inflation,” said Rupa Rege Nitsure, economist with state-run Bank of Baroda.

The scandal-tainted Congress-led government of Prime Minister Manmohan Singh is anxious to tame inflation and revive the economy as it seeks a third term in office with elections due by May 2014.

The main driver of the surge in inflation was vegetable prices, which rose 18.40 percent year-on-year while the cost of onions, regarded as cooking essential, increased 322 percent owing to a supply shortage.

Fuel prices jumped 10 percent, data showed.

India’s new central bank governor Raghuram Rajan surprised markets last month by hiking interest rates as inflation began to creep up.

Rajan had earlier warned he was prepared to take unpopular steps to bring the economy back up to speed.

With inflation well above the Reserve Bank of India’s comfort zone of 5.0 percent, economists say a further rate rise is likely.

“Concerns over inflation remain. We expect a 25 basis point hike in interest rates,” said Dharmakirti Joshi, chief economist with rating agency Crisil.

The RBI meets on October 29 for its quarterly monetary policy decision.

The government also revised upwards July’s inflation reading to 5.85 percent from 5.79 percent reported earlier.

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