Inflation In India is Hot, Hot, Hot
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On the strength of rising food prices, inflation in India rose at nearly a double-digit rate in February, increasing the chances that the central bank in the world’s second-most populous nation will increase interest rates at a monetary meeting next month.
The wholesale price index-based inflation rate increased to 9.89 percent in India, which is the fastest pace of growth in 16 months. The rate increased from an 8.56 percent rise in the previous month according to the Ministry of Commerce and Industry on Monday.
Economists had projected an increase of 9.70 percent for February, according to a poll by Dow Jones Newswires of nine experts.
The Reserve Bank of India had forecast a rate of 8.50 percent by the end of March, but the fast-paced growth in the early months of the year are a result of rapidly increasing food prices as the economic recovery in the country picks up momentum.
The chief economic advisor to the Ministry of Commerce and Industry in India, Kaushik Basu believes that there is still room for expansion in inflation for the country and that the rate could rise to more than 10 percent in March.
"I would expect another month of high inflation, roughly like this, because there is going to be a very strong base effect," said Basu. "After that, inflation should begin to die down, and by May-June, it should virtually die down."
Food prices, which are a large component of the index that tracks inflation, were affected by the weakest monsoon season that has been seen in India on 37 years, hampering the farm output in the country.
The government in India will likely react by removing stimulus packages that were aimed at economic recovery before inflation rates become too out-of-control to handle.
The wholesale price index-based inflation rate increased to 9.89 percent in India, which is the fastest pace of growth in 16 months. The rate increased from an 8.56 percent rise in the previous month according to the Ministry of Commerce and Industry on Monday.
Economists had projected an increase of 9.70 percent for February, according to a poll by Dow Jones Newswires of nine experts.
The Reserve Bank of India had forecast a rate of 8.50 percent by the end of March, but the fast-paced growth in the early months of the year are a result of rapidly increasing food prices as the economic recovery in the country picks up momentum.
The chief economic advisor to the Ministry of Commerce and Industry in India, Kaushik Basu believes that there is still room for expansion in inflation for the country and that the rate could rise to more than 10 percent in March.
"I would expect another month of high inflation, roughly like this, because there is going to be a very strong base effect," said Basu. "After that, inflation should begin to die down, and by May-June, it should virtually die down."
Food prices, which are a large component of the index that tracks inflation, were affected by the weakest monsoon season that has been seen in India on 37 years, hampering the farm output in the country.
The government in India will likely react by removing stimulus packages that were aimed at economic recovery before inflation rates become too out-of-control to handle.
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