India Inflation Accelerates to 16-Year High of 12.63%

India's inflation accelerated to the fastest pace in more than 16 years, increasing the likelihood the central bank will raise interest rates for a fourth time since June., Bloomberg 8/25/2008 8:57:54 AM

Wholesale prices rose 12.63 percent in the week to Aug. 9, after increasing 12.44 percent in the previous week, the commerce ministry said in New Delhi on August 21.

Inflation may climb higher after Prime Minister Manmohan Singh's cabinet last week approved an average 21 percent pay rise for 5 million civil servants, ahead of elections due by May. That may prompt the Reserve Bank of India to add to three rate increases since June, economists said.

India's central bank last month raised its inflation forecast for the year to March 31 to 7 percent from a previous target of between 5 percent and 5.5 percent. The bank's next policy announcement is due Oct. 24.

The Reserve Bank of India last month raised its benchmark rate by a half point to a seven-year high of 9 percent. The reserve requirement for commercial lenders was also lifted to 9 percent from 8.75 percent.

Inflation in India in the week to August 9 accelerated because of a rise in the cost of pulses, cement, vegetables, sugar and textiles. Manufactured price inflation rose 10.91 percent, compared with 10.75 percent in the previous week, today's report showed.

Asia's third-largest economy is expected to expand 7.7 percent in the 12 months to March, compared with an estimated 9 percent a year earlier, according to a report last week from Prime Minister Singh's economic advisory council. That would be the slowest pace of expansion in four years.

India Inflation Accelerates to 16-Year High of 12.63%