Inflation rises to 7.55% in May, highest in a year

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June 14, 2012

India's inflation moved up to to 7.55 percent, fastest pace this year in May, driven by higher food and fuel prices, impeding chances of a rate cut by the RBI at its review next week. Inflation, as measured by the Wholesale Price Index (WPI), was 7.23 percent in April.

Today's inflation number is the last economic data before the Reserve Bank of India's rate review on June 18.

June 14, 2012

India's inflation moved up to to 7.55 percent, fastest pace this year in May, driven by higher food and fuel prices, impeding chances of a rate cut by the RBI at its review next week. Inflation, as measured by the Wholesale Price Index (WPI), was 7.23 percent in April.

Today's inflation number is the last economic data before the Reserve Bank of India's rate review on June 18.

The RBI surprised markets by cutting its benchmark repurchase rate by a larger-than-expected 50 basis points at its last meeting in April. The move was to boost economic growth from a nine-year low reported in the March quarter and was supported by the average inflation rate in the first three months slipping below 7 percent.

A pick-up in the inflation rate may well weaken the case for further policy easing that the industries are crying out for. Industrial output growth was almost flat in April, well below expectations of a 1.7 percent growth, government data showed on Tuesday, adding to the central bank's dilemma. Primary articles – which include food — and fuel, make up over a third of the wholesale price index and elevated prices in these segments have kept the inflation number stubbornly high.

Still, the headline inflation rate is much slower than the 9.52 percent average through 2010 and 2011 which prompted aggressive policy tightening between early 2010 and October last year. Even with international crude oil prices slipping in May below the USD 100 per barrel mark, analysts say its benefits have not passed on to consumers due to the rupee's depreciation and regulated prices of petroleum products in the country, keeping consumer prices relatively high.


Courtesy: ET

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