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Preview: Inflation likely hit 2012 high

Oct 10 2012, 11:39 IST
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SummaryInflation accelerated because of costlier fuel after the government cut subsidies: poll

Indian inflation probably accelerated to its highest level this year in September because of costlier fuel after the government cut subsidies, according to a Reuters poll, complicating the task of the central bank as it faces pressure to ease monetary policy to revive growth.

Asia's third-largest economy grew at its slowest pace in nearly three years in the last quarter and on Tuesday the International Monetary Fund lowered its 2012 forecast to 4.9 per cent, putting pressure on the Reserve Bank of India to cut one of the highest interest rates among G-20 economies.

But the bank has cited stubbornly high inflation as a key risk to the economy.

According to the median forecast in the Reuters poll, the wholesale price index, the country's main inflation gauge, likely rose to 7.70 per cent in September from a year earlier, compared with 7.55 per cent in August and far above the central bank's comfort level of between 4-5 per cent.

It was last higher in December when it hit 7.74 per cent.

Forecasts ranged from 7.20 per cent to as high as 8.00 per cent, with 20 of 23 contributors predicting the September reading to be higher than the previous month.

Given the fact that we have had some correction in diesel prices, it is very natural that inflation would have moved higher, said Indranil Pan, chief economist at Kotak Mahindra Bank in Mumbai.

The government last month increased diesel prices and limited the supply of subsidised cooking gas. It also opened up the country's supermarket sector to foreign chains to woo back investment and stave off a credit ratings downgrade.

Diesel is used by trucks ferrying commodities around the country and analysts expect inflation to quicken further in the coming months as fuel and food makes up over a third of the wholesale price index.

The inflation data, along with industrial output figures due to be released later this week, will set the tone for the RBI's policy meeting on October 30.

Factory output may have risen a modest 1.1 per cent year-on-year in August, after barely growing in July, a separate Reuters poll showed this week.

The RBI has waged a prolonged battle to bring down inflation, raising interest rates 13 times between March 20120 and October 2011. In April this year, however, it surprised markets by cutting the main policy rate by 50 basis points to 8 per cent to spur slowing economic growth.

Since then, the central bank has

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