India Inflation Up 8.56% in January

By ANANT VIJAY KALA
NEW DELHI -- India's wholesale inflation rate in January raced ahead at its fastest clip in 15 months, outpacing a central bank forecast for the end of the fiscal year and increasing the chances of an aggressive tightening of monetary policy to rein in prices.




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An activist from India's main opposition Bharatiya Janata Party (BJP), wearing a garland made with vegetables, shouts slogans during a protest against price rise in New Delhi February 10, 2010.
The Ministry of Commerce and Industry Monday said the country's wholesale price index rose a provisional 8.56%--higher than the 8.5% which the Reserve Bank of India expects to be reached only by the end of the year through March.

The median forecast in a Dow Jones Newswires poll of seven economists was for an 8.21% increase. The index had risen 7.31% in December.

Sugar prices rose 58.96% from a year earlier, textiles 11.14% and food articles 17.43%, pushing up the wholesale price index, India's main gauge of inflationary trends.





The January index for primary articles was up 14.52% from a year earlier to 284.7 while the fuel index rose 6.90% to 351.5.

At a Jan. 29 policy review meeting, the Reserve Bank Of India raised its March-end inflation estimate to 8.5% from 6.5%.

It also raised banks' cash reserve ratio, or the amount of cash they must set aside against deposits, by 0.75% to drain excess liquidity that could fuel inflation.

It kept its key interest rates unchanged, awaiting a broad-based pickup in the economy.

The latest data comes close on the heels of the industrial output print that showed a 16.8% on-year rise in December, sharply ahead of market expectation of 12.6% and the fastest growth since March 1990.

The strong data also signaled that the economy may expand faster than the government's forecast of 7.2% this fiscal year through March.

Inflation, on the other hand, has been surging ahead, driven by a low base and high food prices as the weakest monsoon in 37 years hurt farm output.

Mridul Saggar, chief economist at Kotak Securities, expects the central bank to raise policy rates--but not before its next monetary policy review meeting scheduled for April 20.

"The RBI is unlikely to act further before the next policy with or without gasoline-price hikes as its 75 basis point cash reserve ratio hike is spaced over the next two fortnights and would be followed by surplus liquidity falling further in the second and third week of March due to tax outflows," Mr. Saggar said.

He expects the inflation rate to clock 9.8% by the end of March.

Write to Anant Vijay Kala at anant.kala@dowjones.com