NEW DELHI: India’s inflation accelerated in March to a three-month high, data showed, dashing hopes of an interest rate cut to boost the struggling economy.
The Wholesale Price Index (WPI), India’s closest-watched cost of living monitor, jumped by almost a percentage point from the previous month to hit a year-on-year rate of 5.7 percent in March.
The data came in the midst of voting in India’s mammoth election whose results are due in mid-May. A new opinion poll has predicted the Hindu nationalist opposition and its allies would win a clear parliamentary majority over the ruling Congress party.
The inflation numbers reversed a declining trend and mean “any previously small chance of a near-term rate cut is now off the table completely,” said Glenn Levine, economist at Moody’s Analytics.
Despite pleas from business to allow interest rates to fall, the Reserve Bank of India insists that taming inflation is vital to sustained long-term growth. The bank has raised its benchmark lending rate three times since last September.
March inflation, the highest since December, was spurred by across-the-board price increases in food, fuel and manufacturing. Rice was 12.6 percent costlier than a year earlier, vegetable prices were up 8.6 percent and fuel was 11 percent more expensive.
Fearing a voter backlash, the government has been desperate to curtail inflation, which causes huge suffering for India’s hundreds of million of poor, eroding their buying power.
The opposition Bharatiya Janata Party (BJP), led by Narendra Modi, has pledged creation of a price “stabilization” fund to combat inflation and special courts to try hoarders accused of driving up prices.
Business leaders blamed India’s dilapidated supply chain for pushing up costs and said more rate rises were not the answer.
“The underlying reason for hyper-inflation remains that of supply side constraints,” said Rana Kapoor, president of the Associated Chambers of Commerce and Industry of India.
The latest WPI rise took inflation back above the central bank’s five percent “comfort” level and outstripped market forecasts of a 5.3-percent March reading.
India is gripped by what many economists describe as “stagflation” — elevated inflation and sluggish expansion.
For two years the economy has been growing at below five percent — almost half the rate notched up when it was booming.
Consumer price inflation (CPI), compiled from a smaller goods basket than the benchmark WPI, is also now being closely tracked by the central bank.
Figures for March’s CPI, which has been hovering near double-digits, were due later Tuesday and expected also to show a rise.
The price follows other disappointing figures last week including industrial production which slid by an unexpected 1.9 percent in February, underscoring the huge challenge facing the next government in reviving the economy.
Inflation could rise further as a result of fears the El Nino phenomenon will wreak havoc with the annual monsoon rains and affect the summer crops, analysts said. El Nino has in the past led to both devastating floods and droughts in India.
DBS Group Research in a new report called El Nino “a tail risk” now for India but added if it materializes “the economy would remain in a soft patch.”
The RBI’s benchmark lending rate now stands at eight percent, with the next monetary policy meeting in June.