Markets down on high inflation rate report
Indian inflation soars to 3-1/2-year high
Indian inflation spiked to a 3-1/2-year high last month, partly on rising minerals prices, leading to more worries in the debt and equity markets on Friday about a near-term interest rate hike.
Government data showed inflation, as measured by the wholesale price index, was 7.51 percent in the year to July 24, up from 6.52 percent a week before and way above the median in a recent Reuters poll of 6.70 percent.
Indian inflation has not been this high since February 2001.
"More than 7 percent is really something to be worried about," said T.K. Bhaumik, senior adviser on policy at the Confederation of Indian Industry.
"The government will have to rethink the small savings interest rate as high inflation is increasing the economic insecurity of people -- particularly pensioners and those dependent on fixed-income securities for their livelihood."
The data showed the minerals index rose by 107 percent to 304.2 from 146.9 in the previous week due to higher iron ore prices, which rose 189 percent.
But India's chief economic adviser, Ashok Lahiri, remained optimistic that inflationary pressures would recede in the next few weeks due to a pick-up in monsoon rains.
"We expect inflation to come down by the middle of August. The arrival of monsoon will also help," he told reporters.
In farm-dependant India, a good monsoon helps to boost agricultural output and contain food prices.
A government statement said inflation would be under pressure in the short-term, but was expected to decline due to the arrival of monsoon rains and an "appropriate mix of government policies", though it did not elaborate on the policies.
Lahiri said higher inflation for the week ended July 24 was due to a rise in world commodity prices and a statistical effect.
He explained that last year, the index was stable until August 21, when it started rising. So from mid-August, the higher comparable figure would put downward pressure on this year's inflation, he added.
BONDS, SHARES DOWN
Federal bonds fell on worries that the central bank may be forced to tighten monetary policy to curb inflationary pressures in Asia's fourth-largest economy, while shares declined on worries that a possible rise in rates could choke off demand.
The benchmark 10-year bond yield jumped to close at 6.2750 percent, up from 6.1169 percent before the inflation data was released. The Bombay Stock Exchange top-30 share index shed 1.06 percent to close at 5,196.99 points.
Inflation has been steadily picking up pace in recent months because of rising fuel and commodity prices, which have tracked global trends and raised input costs for manufacturers. Analysts say those rising costs could soon be passed on to consumers.
"What this suggests is that inflationary pressures in the economy cannot be taken lightly and further reinforces the view that there will be a 50-basis-point repo rate hike by February," said Sanjeet Singh, economist at ICICI Securities.
"The inflation reading is likely to touch 8 percent in the near term as higher oil and petrochemical prices get factored."
India's bank rate, used to price loans, is at a three-decade low of 6 percent, while the short-term repo rate is 4.5 percent.
Economists in India track the wholesale price inflation data because it has a large basket of goods and information is readily available. The government uses the WPI data for adjustments to salaries and allowances.
Indian inflation soars to 3-1/2-year high
Indian inflation spiked to a 3-1/2-year high last month, partly on rising minerals prices, leading to more worries in the debt and equity markets on Friday about a near-term interest rate hike.
Government data showed inflation, as measured by the wholesale price index, was 7.51 percent in the year to July 24, up from 6.52 percent a week before and way above the median in a recent Reuters poll of 6.70 percent.
Indian inflation has not been this high since February 2001.
"More than 7 percent is really something to be worried about," said T.K. Bhaumik, senior adviser on policy at the Confederation of Indian Industry.
"The government will have to rethink the small savings interest rate as high inflation is increasing the economic insecurity of people -- particularly pensioners and those dependent on fixed-income securities for their livelihood."
The data showed the minerals index rose by 107 percent to 304.2 from 146.9 in the previous week due to higher iron ore prices, which rose 189 percent.
But India's chief economic adviser, Ashok Lahiri, remained optimistic that inflationary pressures would recede in the next few weeks due to a pick-up in monsoon rains.
"We expect inflation to come down by the middle of August. The arrival of monsoon will also help," he told reporters.
In farm-dependant India, a good monsoon helps to boost agricultural output and contain food prices.
A government statement said inflation would be under pressure in the short-term, but was expected to decline due to the arrival of monsoon rains and an "appropriate mix of government policies", though it did not elaborate on the policies.
Lahiri said higher inflation for the week ended July 24 was due to a rise in world commodity prices and a statistical effect.
He explained that last year, the index was stable until August 21, when it started rising. So from mid-August, the higher comparable figure would put downward pressure on this year's inflation, he added.
BONDS, SHARES DOWN
Federal bonds fell on worries that the central bank may be forced to tighten monetary policy to curb inflationary pressures in Asia's fourth-largest economy, while shares declined on worries that a possible rise in rates could choke off demand.
The benchmark 10-year bond yield jumped to close at 6.2750 percent, up from 6.1169 percent before the inflation data was released. The Bombay Stock Exchange top-30 share index shed 1.06 percent to close at 5,196.99 points.
Inflation has been steadily picking up pace in recent months because of rising fuel and commodity prices, which have tracked global trends and raised input costs for manufacturers. Analysts say those rising costs could soon be passed on to consumers.
"What this suggests is that inflationary pressures in the economy cannot be taken lightly and further reinforces the view that there will be a 50-basis-point repo rate hike by February," said Sanjeet Singh, economist at ICICI Securities.
"The inflation reading is likely to touch 8 percent in the near term as higher oil and petrochemical prices get factored."
India's bank rate, used to price loans, is at a three-decade low of 6 percent, while the short-term repo rate is 4.5 percent.
Economists in India track the wholesale price inflation data because it has a large basket of goods and information is readily available. The government uses the WPI data for adjustments to salaries and allowances.