Inflation in India is probably running at double digits, smashing hopes of a pause in interest rate increases by the Reserve Bank of India even as dodgy industrial output numbers signal a slowing economy. Inflation as measured by the wholesale price index rose 9.44% in June, up from 9.06% in May. The 1.08 percentage point upward revision in April WPI numbers has led economists to believe that inflation is above 10% now. Although the WPI numbers were lower than the estimated 9.68%, RBI Governor Duvvuri Subbarao may not have room for a pause since the full effect of higher diesel prices are not captured as yet, say analysts. Corporate earnings, which the RBI relied on in its last review to justify a 25 basis points rise, appears to be strong given some early numbers for the June quarter. A basis point is 0.01 percentage point. But the silver lining is slowing rise in the prices of manufactured goods, pointing to the impact of 10 rate increases in 15 months. Core inflation, which excludes volatile food and energy, rose marginally to 7.3% from 7.2% in May after rising steeply in the last few months. Bonds fell with the 10-year benchmark bond yield rising soon after the release of data on inflation to 8.28% from 8.26%. Bond prices and yield move in opposite directions. The Sensex, which rose since it was below expectations, surrendered gains as rate increase looks imminent. The dangers posed by inflation to longterm sustained economic growth is beginning to be felt. India’s industrial production rose 5.6% in May from a year earlier, the lowest since August 2010 and capital formation in the fourth quarter of last fiscal stagnated.
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