India Wholesale Inflation 29 February 2008

India's inflation accelerated to a nine-month high as prices of fruits, vegetables and oilseeds rose, giving the central bank less room to reduce interest rates.

Wholesale prices climbed 5.02 percent in the week ended Feb. 23 from a year earlier, faster than the previous week's 4.89 percent, the Ministry of Commerce and Industry said in New Delhi.





Reserve Bank of India Governor Yaga Venugopal Reddy said tackling inflation is a higher priority than boosting economic growth, following the publication of today's report which showed prices breached the bank's 5% inflation target for the first time in nine months.

"The large segments of the poor tend to reap the benefits of high growth with a time lag while the rise in prices affects them instantly," according to Reddy's comments in the prepared text of a speech he is scheduled to give in Paris today. "Considerable weight is currently accorded by the Reserve Bank of India to price and financial stability while recognizing its twin objectives of growth and stability."

Reddy has raised the central bank's policy rate nine times since October 2004 and ordered lenders to set aside more money as reserves five times since December 2006 to slow consumer borrowings and tame manufacturing prices. Manufacturing price inflation has declined 40 percent in the past year.


Meanwhile India's rupee fell by the most in a week since August this week on speculation equity market losses will spur global funds to reduce investments. The currency fell to the lowest in almost six months after data from the stock market regulator showed funds based abroad increased sales of local equities. The rupee declined after oil prices climbed to a record, raising concern India's widening current-account deficit will boost demand for dollars. The rupee weakened 1.3 percent to 40.535 per dollar this week in Mumbai, the biggest loss since the five days ended Aug. 17 and the lowest closing level since Sept. 17.




India's benchmark share index fell 3.4 percent, rounding off the biggest weekly loss since May 2006. The index has lost 21.3 percent this year after gaining 47 percent in 2007.

Funds based abroad sold more shares than they bought in the four days through March 4, the longest run in more than two weeks, data from the Securities and Exchange Board of India show. They sold a net $3.2 billion this year, following net purchases worth a record $17.2 billion last year.

India's capital-account surplus rose to a record $33.9 billion in the quarter through September, according to the central bank. The current-account shortfall widened 6 percent to $5.52 billion from the previous three months.

In the week ending 29 February India's foreign exchange reserves rose to $301.235 billion, up from $294.61 billion.

India Exports January 2008

India's export growth accelerated in January for the first time in three months as companies shipped more gems, jewelry and other manufactured goods. Shipments, which account for about 15 percent of India's $906 billion economy, rose 20.5 percent from a year earlier to $13.14 billion, the commerce ministry said in a statement in New Delhi last week. That was faster than December's 16 percent gain. Overseas sales are rising as companies boost shipments to Europe and Japan to counter weaker demand from the U.S., India's biggest exports market.

Imports advanced 63.6 percent in January from a year earlier to $22.5 billion, widening the trade deficit to $9.3 billion from $2.8 billion, according to the report. Oil imports in January rose 61 percent to $7.7 billion, while non-oil imports gained 65 percent to $14.8 billion.


Overseas sales are also benefiting from stronger shipments from industries such as gems, jewelry, oil products and engineering goods -- which account for more than half of India's exports. That's helped to offset a slowdown from other sectors like fabrics and chemicals. Gems and jewelry exports rose 11.1 percent to $1.7 billion in January from $1.6 billion in the same month a year ago, according to the Gem & Jewelry Export Promotion Council.

Shipments to Europe rose 19.7 percent in the six months to Sept. 30, compared with 16.1 percent in the same period a year ago, according to the latest breakdown of exports data released by the Reserve Bank of India. Growth in sales to Japan jumped to 30 percent from 5.6 percent in the same period.

Exports to the U.S. grew 5 percent in the six months ending September, down from 14.7 percent a year earlier. India provides a more detailed analysis of exports five months after releasing initial data.

Rising demand for Indian goods helped exporters to overcome the rupee's near 10 percent gain against the U.S. dollar since the beginning of the current fiscal year in April 1, which has made products manufactured in India more expensive overseas.

Exports of vehicles, including cars and trucks, in January rose 26 percent to 97,123 from a year earlier, according to the Society of Indian Automobile Manufacturers in New Delhi.

India GDP Q4 2007

India's economy is slowing - although not dramatically so - and grew at the slowest pace since 2005 during the last quarter of 2007 as tighter central bank credit reduced the rate of consumption expansion and a higher rupee slowed export growth. The economy expanded by 8.4 percent in the three months ended Dec. 31 over a year earlier, after rising by 8.9 percent in the previous quarter, the Central Statistical Organisation said at the end of last week.




Growth has slowed after the Reserve Bank of India raised benchmark rates nine times since October 2004 and increased its cash reserve cap five times since December 2006 to slow bank lending and help curb inflation, which reached a eight-month high of 4.89 percent in the second week of February. Loan growth has slowed in recent months as consumers bought fewer automobiles and washing machines because of high interest rates and delayed home purchases as prices rose. Construction grew at an 8.4% year on year rate, down from 11.1% in the previous quarter. Lending grew 22.8 percent in the 12 months through Feb. 1, less than the 29.8 percent expansion which took place over the year to Feb 1 2007.


Agricultural output grew 3.2 percent in the fourth quarter from a year earlier, after a revised 3.7 percent gain in the three months ended Sept. 30, according to the report. That was the weakest pace in 11 quarters. Manufacturing gained 9.3 percent last quarter from a year earlier, accelerating from a previous increase of 8.6 percent, according to today's report. Electricity output growth slowed to 5.3 percent from 7.3 percent.

Clearly the most important short term objectives are to bring inflation back under control and to improve the competitiveness of the export sector given that in the longer run a rising rupee is likely to be a fact of life.

India Wholesale Inflation 16 February 2008, Forex Reserves and the Rupee

India's inflation accelerated to an eight-month high in the middle of February after the government raised retail prices of gasoline and diesel for the first time in more than 1 1/2 years. The upward swing in inflation is very evident in the chart below. In fact wholesale prices climbed at a year on year rate of 4.89 percent in the week ended Feb. 16, up from the previous week's 4.35 percent gain, according to data from the Ministry of Commerce and Industry.



On Feb. 14 the Indian government raised gasoline prices by 4.5 percent, the first increase since June 2006, in an attempt to cut losses at oil companies and lower the burden of record crude oil costs.

The dollar value of India's foreign exchange reserves continued to climb reaching 294.6 billion dollars by 22 February, up from 292.8 billion a week earlier. Also overseas investors bought an average $77.9 million of Indian equities more than they sold each day in February up to Feb. 27, compared with net sales of $185.7 across the whole of January, according to data presented on Friday by the Securities & Exchange Board of India.



India's rupee completed its worst month since May 2006 on speculation refiners increased purchases of dollars to pay for crude oil after the commodity's price rose to a record.

The currency ended two months of gains as oil reached an all-time high of $103.05 a barrel, boosting import costs for India, which depends on shipments from overseas to meet three- quarters of its energy needs. The rupee fell 1.4 percent this month to 40.0125 per dollar at 5 p.m. in Mumbai on Friday 29th February.



Crude oil has advanced 6.2 percent so far this year after rising 57 percent last year, the sixth straight annual gain and the biggest since 2002. India imported an average $5.1 billion of oil a month in 2007, higher than $4.7 billion in 2006.