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Friday, December 14, 2007

India December 2007 Price Inflation

India's wholesale price inflation accelerated to a three-month high this week as the prices of fruits, vegetables and oil products increased, the government said. Still, the general position across 2007 is not that bad.

Wholesale prices rose 3.75 percent in the week ended Dec. 1 from a year earlier, faster than the previous week's 3.01 percent gain, the Ministry of Commerce and Industry said today in New Delhi. That was the highest since 3.94 percent in the week ended Aug. 25. Analysts had forecast inflation at 3.49 percent.

India today revised the inflation rate for the week ended Oct. 6 to 3.22 percent from 3.07 percent. The government revises the figure after a delay of two months on additional price data.

In October, the consumer price index for industrial workers (CPI IW) rose at a monthly rate of 0.75% after having remained unchanged month-on-month in September, and having risen 0.76% in August. As a result, annual headline inflation has dropped steadily from 7.3% in August to 6.4% September and to 5.5% in October.

Despite the benign inflationary environment of the past months, in line with market expectations, the Reserve Bank of India decided to maintain the interest rate unchanged at 7.75% on its 30 October policy meeting. However, the Bank unexpectedly raised the cash reserve ratio (CRR) for the fourth time this year by 50 basis points, from 7.0% to 7.5%, in order to prevent what monetary authorities consider “unacceptably high” inflows of foreign capitals from fuelling price pressures.

The Bank’s governor, Yaga Venugopal Reddy recently described the current inflation rate as “suppressed”, since it does not reflect the record oil prices, as the government has restrained from raising fuel prices so far this year. The Central Bank aims at keeping inflation close to 5.0% this fiscal year ending March 2008, and to lower it to a range of 4.0% to 4.5% over the medium term.

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