Friday, April 16, 2010

Inflation in Single digit...

Inflation touched a 17-month high of 9.9% in March spurred by an all-round increase in prices, mounting pressure on the central bank to raise key policy rates in the monetary policy review next week.

A spurt in global demand due to a remarkable recovery by China and positive signals from the US will allow the Reserve Bank of India to target inflation aggressively without worrying about derailing growth momentum. The central bank is widely expected to raise policy rates by 25-50 basis points on Tuesday.

Annual year-on-year inflation based on the wholesale price index stayed above the central bank’s year-end projection for the third straight month. In January the Reserve Bank raised its wholesale price inflation forecast to 8.5 % from 6.5 %.

Policymakers expect high inflation to persist in coming months on account of inflationary expectations that are building up. They are concerned about rising commodity prices and a rapid increase in core inflation, or inflation stripped of fuel and food prices.

The food price inflation eased in March as winter crops started entering the market. Asia’s third largest economy is expected to expand 8.5% in the current fiscal. It grew by 7.2% last year, after recording 6.7% growth in year ended March 2009. It had posted 9%-plus growth rates in the three preceding years.

India’s official weather forecaster will come out with the first forecast of monsoon rains next week. The rains are crucial for the summer crops that account for 40% of India’s farm output. Agriculture contributes only 17.5% to the country’s gross domestic product, but it provides livelihood to majority of India’s 120 crore population.

Last year India experienced the worst monsoon rain in more than 37 years, sending the food price inflation to a 12-year high of 21% in October last year.

Non-food manufacturing inflation rose to 4.7% in March from 4.3% in February. Inflation in this segment is expected to harden further, financial services firm Morgan Stanley said in a research note.

The world’s largest economies are showing faster-than expected recovery from the global economic downturn. Chinese economy expanded 11.9% in the three months to March, the highest rate in more than 3 years. The US economy is expected to recover at a moderate pace in the coming quarters, bolstered by a return of business confidence and increased consumer spending.

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