New Delhi: India's wholesale price index (WPI) rose in May to 7.55 per cent, keeping price pressures elevated and making it harder for the RBI to revive economic growth with a widely expected interest rate cut next week.
The rise in the WPI from 7.23 per cent in April came as both food and fuel prices picked up. It matched expectations in a Reuters poll.
The increase keeps inflation near its highest level this year - March data was revised up to a 2012 high of 7.69 per cent - as policymakers come under pressure to revitalise an economy running at its lowest ebb in nine years and to steer the country away from a damaging ratings downgrade to junk status.
Still, traders said core inflation, which excludes volatile food and fuel prices, was around 5 per cent, giving the Reserve Bank of India (RBI) room to cut its policy rate at a meeting on Monday.
"Since core inflation is still below 5 per cent, I would expect RBI to cut rates by 25 basis points as that is the key number," said A Prasanna, an economist at ICICI Securities Primary Dealership in Mumbai.
Economists calculate core inflation from the data.
Bond prices and stocks fell, while the rupee weakened after the data because it dashed earlier speculation that the headline figure would be below 7 per cent.
The repo rate of 8.00 per cent is the highest RBI policy rate among major economies in Asia. It cut the rate by 50 basis points in April as the growth outlook became more of a concern.
A political logjam in New Delhi and the euro zone debt crisis are weighing on Asia's third-largest economy. Capital inflows have slowed and the current account deficit widened.
Growth slumped to a nine-year low of 5.3 per cent in the first quarter of calendar 2012 and data this week showed industrial output growth flatlined in April, triggering fresh calls for the government to restart an economic liberalisation programme stalled since 2004.
A Reuters poll after the GDP figures predicted the RBI will cut its repo rate by 25 bps to 7.75 per cent on Monday to support growth.
"There is no room left for any fiscal stimulus, so to trigger growth, the RBI has to lower policy rates," said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.
Still, central bankers face tough choices with inflation at relatively high levels.
Supply bottlenecks that stoke price pressures remain largely unattended, undermining the inflation fight. A fall in the rupee to a record low raises import price pressures.
Standard & Poor's this week threatened to downgrade the country's investment grade sovereign rating to junk, citing weakening economic fundamentals and policy inaction. It cut the outlook on its long-term rating on India to negative from stable in April.
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