India s inflation leaps above 8 percent

January 14, 2011

, NEW DELHI, Jan 14, 2011 – India\’s inflation rose again to 8.43 percent in December, data showed Friday, as the government announced steps to curb food prices amid mounting public anger over the cost of living.

The wholesale price index, used as the main measure for inflation in India, accelerated to 8.43 percent in December from 7.48 percent in November, raising the prospect of another interest rate hike later this month.

The figures will further worry the left-leaning Congress-led government, which has been buffeted by several high-profile corruption scandals and is looking to dampen frustration over spiralling food prices.

Onions have been front-page news for the last month after prices more than tripled from their normal level due to unseasonable rains that spoiled crops late last year.

Food inflation of 16.9 percent over 12 months was at "unacceptable levels," Finance Minister Pranab Mukherjee said on Friday.

"It is a continuing battle," he told reporters in New Delhi on Friday while pointing to the fall in wholesale inflation from its highs of more than 10 percent at the beginning of 2010.

The inflation data and prospects of higher interest rates hit sentiment on the Bombay Stock Exchnage, where stocks fell 1.68 percent on Friday, closing below the key 19,000-points level at a two-month low.

The government issued new policy steps on Thursday to rein in food prices, which were widely criticised as being too little and too late.

It said it would review import and exports of all essential commodities and form a new group to study prices, while admitting that it was difficult to control the prices of fruit and vegetables.

The statement also said that some of the changes in prices were due to rising incomes, which have seen India\’s middle classes increase consumption and switch to dairy and high-protein foods.

The Indian central bank, which held rates in December, is now widely forecast to hike interest rates again when it meets on January 25.

The Reserve Bank of India was one of the most aggressive in 2010, raising the cost of borrowing on six separate occasions as the South Asian economy powered out of the global downturn.

The economy grew a forecast-breaking 8.9 percent year-on-year in the July-September 2010 quarter and is forecast by the government to grow 9.0 percent in the current fiscal year to March 31.

"Unless there is some substantial decline in food prices in the next two weeks, in my view perhaps some tightening may be required," the chairman of the prime minister\’s Economic Advisory Council, C. Rangarajan, told reporters Friday.

Rajeev Malik, senior analyst of CLSA Securities, forecast that the RBI would hike rates three times by mid-2011, starting with one in January.

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