India's Inflation Rate Near Highest in 16 Years

India's inflation held near a 16- year high as floods in half the country damaged crops and disrupted food supplies., Bloomberg 8/28/2008 7:13:06 AM

Wholesale prices rose 12.40 percent in the week to Aug. 16, after increasing 12.63 percent in the previous week, the commerce ministry said in New Delhi today. Economists were expecting a 12.78 percent gain.

Heavy rains have killed at least 1,600 people in 17 states and hurt crops in major grain-producing states like Punjab, Haryana and Andhra Pradesh. That's pushed up food costs and may prompt the Reserve Bank of India to add to its three interest- rate increases since June.

The annual June-September monsoon season, which accounts for four-fifths of India's annual rainfall, has this year caused flash floods which have already displaced 12.6 million people and killed 18,859 animals, according to the national disaster management office.

Elevated inflation may slow the pace of economic growth. India's $912 billion economy is forecast to expand close to 8 percent in the fiscal year that started April 1, according to the finance ministry, the weakest pace in four years.

The Reserve Bank last month raised its benchmark interest 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.

Prices of pulses, fruits, spices, sugar and textiles rose in the week to August 16, while prices of vegetables, meat and edible oils declined, today's report showed. Manufactured price inflation rose 11.02 percent, compared with 10.91 percent in the previous week.

The government may revise today's preliminary wholesale- price estimate in two months after receiving additional data. The commerce ministry today raised its inflation estimate for the week ended June 21 to 11.91 percent from 11.63 percent.