India's Inflation Slows for a Third Consecutive Week

By Kartik Goyal

Sept. 11 (Bloomberg) -- India's inflation slowed for a third straight week, signaling that the central bank's three interest-rate increases since early June are beginning to work.

Wholesale prices rose 12.1 percent in the week to Aug. 30 from a year earlier, the commerce ministry said in New Delhi today. That compared with a 12.34 percent gain in the previous week and the median 12.01 percent forecast in a Bloomberg News survey of 22 economists.

Governor Duvvuri Subbarao, who took over the top job at the Reserve Bank of India last week, said Sept. 9 he would take ``appropriate'' action as it was not yet clear if the moderation in inflation was a ``discernible trend.'' Wholesale prices have risen at more than twice the central bank's targeted 5 percent pace since June.

``The present level of inflation is way above the comfort zone,'' said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor's. ``I expect the central bank will raise the repurchase rate by another 25 basis points at its October meeting.''

Subbarao's predecessor Yaga Venugopal Reddy, who retired Sept. 5, in July raised the benchmark interest rate by a half point to a seven-year high of 9 percent after raising it twice in June. Other central banks across Asia have also been increasing borrowing costs amid higher food and fuel prices.

Bonds Rise

India's 10-year bonds rose for a third day, pushing yields to a three-month low. The yield on the benchmark 8.24 percent note due April 2018 fell 9 basis points to 8.28 percent at the 5:30 p.m. close in Mumbai, according to the central bank's trading system.

Higher interest rates have slowed growth in India, Asia's third-largest economy, Subbarao said this week. The central bank expects the $912 billion economy to expand 8 percent in the 12 months ending March, the slowest pace in four years.

India's economy grew 7.9 percent in the three months to June 30 from a year earlier, the weakest pace since the last quarter of 2004. The central bank's next monetary policy statement is due Oct. 24.

Declining oil and commodity prices are helping cool inflation across Asia and easing pressure on the region's central banks to keep increasing interest rates. Consumer prices in China rose 4.9 percent in August from a year earlier, the smallest gain since June 2007. Japan's wholesale inflation rate fell for the first time in 11 months.

Crude Oil

Crude has fallen about 30 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduced demand for fuels.

India's inflation has eased since reaching a 16-year high of 12.63 percent in the week to Aug 9.

Prices of rice, corn, onions, potatoes, spices and edible oils declined in the week to Aug. 30, today's report showed. Manufactured-price inflation, with a 64 percent weight in the inflation basket, rose 11.07 percent, slower than the 11.28 percent gain in the previous week.

Elevated energy and commodity prices forced the central bank in July to raise its inflation forecast for the year to March 31 to 7 percent from a previous target of between 5 percent and 5.5 percent.

The government may revise today's preliminary wholesale- price estimate in two months after receiving additional data. The commerce ministry today raised its inflation estimate for the week ended July 5 to 12.19 percent from 11.91 percent.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.