Thursday, December 15, 2011

India inflation stays above 9 percent in November

Indian laborers work at a construction site in Bangalore, India, Tuesday, Dec. 13, 2011. Indian rupee, hit a fresh record low Tuesday, after a contraction in industrial output reported the day before. The currency touched 53.52 against the dollar, down over 21 percent since late July. It is the third time in three weeks that it has breached prior lows. (AP Photo/Aijaz Rahi)

Indian laborers work at a construction site in Bangalore, India, Tuesday, Dec. 13, 2011. Indian rupee, hit a fresh record low Tuesday, after a contraction in industrial output reported the day before. The currency touched 53.52 against the dollar, down over 21 percent since late July. It is the third time in three weeks that it has breached prior lows. (AP Photo/Aijaz Rahi)

(AP) ? India's inflation rate remained above 9 percent in November, leaving the central bank with little leeway to reverse interest rate hikes that have choked growth in Asia's third-largest economy.

The plunging value of the rupee, which hit a fresh record low against the dollar Wednesday, is pushing up the cost of fuel and manufactured products even as big increases in food prices start to wane, government figures showed.

Although November's 9.1 percent inflation rate was the lowest in a year, it remains far above government targets.

"The concern about inflation cannot be taken away from the monetary authority," C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council, told reporters.

The country's economic problems have been exacerbated by a deadlocked Parliament and the weakness of the ruling Congress Party. Measures that could encourage investment and growth have been stalled by political bickering. Uncoordinated fiscal and monetary policy hasn't helped either.

India's economy grew 6.9 percent in the September quarter, the slowest in over two years and industrial output has contracted for the first time in over two years.

Many economists and business people say India needs to enact difficult but crucial reforms to kickstart the economy and reassure investors. Government officials, in contrast, have emphasized the global factors dragging on the investment cycle, and some seem to hope lower interest rates will offer a quick fix instead.

"There is a slowdown across the world," said Ajay Shankar, secretary of the government's National Manufacturing Competitiveness Council. "The interest rate should come down. Then you get a better investment climate."

Thirteen rate hikes since March 2010 haven't tamed inflation, which has topped 9 percent in 20 of the last 22 months. The central bank is widely expected to hold rates steady this week.

D.K. Joshi, chief economist at research and ratings agency Crisil, said without the Reserve Bank of India's aggressive rate hikes, inflation would have likely soared above 10 percent.

The central bank's anti-inflation stance has been weakened by government spending in the run up to important state elections and fuel price hikes, which have been needed to keep the government's ballooning fuel subsidy bill in check.

"The demand created through government expenditure has offset some of the moves of RBI, that's having an impact," Joshi said. "The fuel inflation has been kept suppressed. Now when you have a fiscal burden you have to pass that on to the consumer."

The rupee has plunged over 20 percent since July and hit a fresh low of 53.76 on Wednesday. That's bad news for a country that runs a current account deficit and imports about three quarters of its oil. Rising wages and raw material costs have also hit manufacturers.

Associated Press

Source: http://hosted2.ap.org/APDEFAULT/f70471f764144b2fab526d39972d37b3/Article_2011-12-14-AS-India-Economy/id-8cf722cf4de74411b3e1ef0411e90fd5

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