New Delhi: India's wholesale price inflation rose at a slower-than-expected pace in March following an easing in manufacturing inflation, although a rate hike by the Reserve Bank of India (RBI) at its policy review next week remains a near certainty.
India's wholesale price index rose 9.90 per cent in March from a year earlier, below a median forecast for a 10.39 per cent rise in a Reuters poll, and slightly higher than the previous month's annual rise of 9.89 per cent. The figure was still the highest since October 2008.
At its January policy review, the RBI raised its WPI inflation projection for end-March 2010 to 8.5 percent from its earlier 6.5 percent with an upside bias.
Manufacturing inflation eased to 7.13 per cent in March from 7.4 per cent in the previous month.
Fuel inflation, however, quickened to 12.71 per cent in the same month from 10.2 per cent in February following a hike in domestic fuel prices and an upswing in world crude prices .
With the RBI’s policy focus increasingly shifting towards containing inflation, investors are betting on at least a 25 basis point rate hike on April 20. That would follow the RBI's surprise 25 basis point hike on March 19.
"The headline WPI number is slightly lower than expected, remains below the 10 per cent and has peaked now. High base effect will start to drag the headline inflation rate lower from next month onwards," said Gaurav Kapur, senior economist at Royal Bank of Scotland in Mumbai.
"The WPI inflation rate may not fall below 7-7.5 per cent over the first half of the current fiscal year. This data, however, will not change the course of monetary policy normalisation," he added.
The Reserve Bank of India had cited increased capacity utilisation as one of the principal factors driving up inflation and analysts expect the central bank to try to cool demand until companies boost their output potential.
The latest Reuters poll shows analysts expect rates to go up by further 100 basis points between now and the end of the year.
Rising political pressure
Rising inflation has put the Congress-led ruling coalition on the back foot, forcing it to defer key economic reforms including market-determined fuel prices as it gears up to take on an emboldened opposition in parliament.
The main opposition parties have said they would seek a special vote on the budget for the financial year that began on April 1, demanding a rollback in petroleum and fertiliser price hikes. If the government loses the vote, it will have to resign.
The parties have also called for country-wide strikes to protest against rising prices.
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