7.3% inflation raises rate hike specture

7.3% inflation raises rate hike specture
The Economic Times, January 15, 2010, Page 1

Our Bureau NEW DELHI

STEEL and zinc joined sugar and potatoes to take inflation for December 2009 past RBI’s target for the fiscal year, raising the odds that the central bank could resort to some form of monetary tightening as concerned policymakers try to curb rising prices.

Government data on Thursday showed inflation, as measured by the Wholesale Price Index, rose the most in more than 12 months to 7.31% from a year earlier, a day after the PM called a meeting with chief ministers seeking their cooperation to control a situation that threatens to get out of hand.

The inflation rate is ahead of RBI’s revised target of 6.5% for the fiscal year. It was 6.15% last year.

The acceleration in price rise, which began with rising food costs due to a poor monsoon, is spreading to industrial products as economic growth on the back of an easy money policy and low taxes lifts demand for cement, cars and steel.

While this has put the focus firmly on what the central bank will do at its upcoming monetary policy review on January 29, an overwhelming majority of economists polled by ET on Thursday expect RBI to follow China and only raise banks’ reserve requirements.