India’s inflation accelerated to a three-month high in March, dashing hopes of interest rate cuts to revive a sputtering economy.
The data was released on Tuesday in the midst of voting in India’s multi-phase election that a new poll suggests will be handily won by the right-wing Hindu nationalist opposition and its allies, who are running on a platform of rebuilding Asia’s third-largest economy.
The Wholesale Price Index (WPI), India’s closest-watched cost of living monitor, jumped by nearly a percentage point from the previous month to hit a year-on-year rate of 5.7 per cent in March, outstripping market forecasts of a 5.3 per cent reading.
Inflation is a hugely sensitive political issue in India and the Congress government, fearing a voter backlash, has been desperate to curtail price rises, which cause huge suffering for the nation’s hundreds of million of poor by eroding their buying power.
The inflation numbers reversed a declining trend that had fanned hope the central bank might be winning its war on the rising cost of living.
The climb means “any previously small chance of a near-term rate cut is now off the table”, said Glenn Levine, economist at Moody’s Analytics.
Investment house Bank of America-Merrill Lynch said it does not expect a rate cut until next March.
Despite pleas from business to lower interest rates, the Reserve Bank of India (RBI) insists monetary policy must remain tight to tame inflation and ensure long-term growth.
The RBI has raised its key lending rate three times since last September. It now stands at eight percent.
March inflation, the highest since December, was spurred by across-the-board price increases in food, fuel and manufacturing.
Rice was 12.6 per cent costlier than a year earlier, vegetables were up 8.6 per cent while fuel was 11 per cent more expensive.