Global Biz

India's inflation worse than expected in Feb

(Agencies)
Updated: 2011-03-14 16:09

MUMBAI, India?- India's inflation quickened to an uncomfortable 8.3 percent in February, while solid growth in production and exports failed to stem the outflow of foreign portfolio investment in Asia's third largest economy.

The inflation figure announced by the government Monday was higher than expected and suggests the central bank may continue raising interest rates when it meets later this week. Central bankers across Asia are struggling to tame rising prices and India has been among the most aggressive in hiking rates.

Related readings:  China inflation?steady at 4.9% in Feb  S. Korean economy?faces demand-pull inflation  Inflation may peak in second quarter

The figure topped a CNBC-TV18 poll that forecast 7.8 percent inflation and was higher than January's 8.2 percent increase.

The government also said December inflation was 9.4 percent, rather than 8.4 percent as previously announced.

Food inflation?-- long blamed for India's rising prices?-- has eased since January, but manufacturing inflation, which the central bank watches closely, jumped 1.3 percent from January.

Uncertainty in global oil markets has worsened inflation jitters in a country that imports three-quarters of its oil.

India's delicate fiscal balance could also be jarred by higher oil prices because the government subsidizes domestic fuel prices.

Citigroup economists calculate that a $1 increase in oil prices would add $800 million to India's trade deficit, triggering a 0.68 percent to 3.4 percent rise in inflation and a 0.2 to 0.3 percentage point hit to growth.

Other economic data suggest that growth is on track. Manufacturing exports surged 49.8 percent in February over the same month last year, to an 11-month high of $23.6 billion.

Industrial output grew a better than expected 3.7 percent in January, though output for the April to January period slowed to 8.3 percent from 9.6 percent the prior year.

Still, foreign investors have pulled $2.1 billion from Indian stocks so far this year. The benchmark Sensex index has fallen over 11 percent this year, underperforming Asian neighbors, largely on fears of higher oil prices and souring investor sentiment over a spate of corruption scandals.