Inflation declines to minus 1.55%

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: The wholesale prices fell for a fourth straight week, ahead of a government increase in fuel costs that may rekindle inflation pressures in coming months.

The benchmark wholesale-price index declined 1.55% in the week to June 27 from a year earlier after tumbling 1.30% in the previous week, the government said on Thursday. Prices plunged 1.61% in the first week of June, the biggest drop since December 1978, according to RBI data.

Declines won’t last for long after last week’s first increase in fuel prices in more than a year. The reemergence of inflationary pressures may prompt the central bank to start raising interest rates from a record low by early 2010, according to economist Indranil Sen Gupta.

“Rising inflation risks buttress our expectation of the Reserve Bank of India reversing its easy money policy by January-April 2010,” said Gupta, an economist at Bank of America-Merrill Lynch in Mumbai. “We continue to expect wholesale-price inflation to turn up after September.”

Other gauges of inflation, which RBI also monitor when determining the direction of monetary policy, remain high.

Consumer prices paid by farm and rural workers jumped 10.21% in May from a year earlier and have averaged gains of more than 10 % for the past 12 months. Consumer prices paid by industrial workers rose 8.63% in May from a year earlier, according to the latest government data.

India has four consumer price indices and uses the wholesale-price index as the benchmark as the other inflation measures don’t capture the aggregate price picture.

The difference between the wholesale and consumer-price indexes can be attributed to the weighting given to food items. Food accounts for as much as 70% of the consumer-price index, compared with just 27% of the wholesale-price index, according to the RBI.

“Such divergences in alternative inflation measures complicate the conduct of monetary policy in India,” central bank governor D Subbarao said on July 2. The Reserve Bank of India, which last cut borrowing costs on April 21, next meets to set interest rates in Mumbai on July 28. The yield on the 6.07 % note due May 2014 held at 6.34 % as of 11:55 a m in Mumbai, unchanged from before the release of the inflation report, according to the central bank’s trading system.