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India's Inflation Accelerates In May

03:58, 14th June 2012

(RTTNews) - India's inflation increased at a slightly higher than expected pace in May, making it harder for the central bank to cut interest rates as widely expected.

Wholesale price annual inflation rose to 7.55 percent in May from 7.23 percent in April, the Ministry of Commerce and Industry said in a statement on Thursday.

The annual rate was slightly higher than the economists' forecast of 7.5 percent. Nonetheless, inflation slowed from the 9.56 percent rate seen during May 2011.

On a monthly basis, wholesale prices were up 0.49 percent.

Both food and fuel prices continued to show double-digit growth. Food inflation accelerated to 10.74 percent from 10.49 percent last month. Likewise, the increase in fuel and power prices quickened to 11.53 percent from 11.03 percent.

Primary articles rose at an annual rate of 10.88 percent compared to April's 9.71 percent rise. Meanwhile, manufactured product prices were up 5.02 percent, slightly slower than the 5.12 percent increase in April.

Core inflation, that excludes volatile food and fuel prices, stayed around 5 percent in May.

Slower economic growth and sovereign rating risks are pressurizing the Reserve Bank of India to slash its interest rate again next week. However, inflationary pressure as well as a weak rupee exchange rate are limiting the scope for such reduction.

For the first time in three years, the RBI cut its rates by 50 basis points in April to support growth. Policymakers will meet on June 18.

India's economy expanded 5.3 percent during the quarter ended March 2012, the slowest pace in nine years. Reinforcing hopes of a rate cut, industrial output rose only 0.1 percent in April.

Standard & Poor's warned this week that India may become the first nation among the BRIC to lose its investment grade.

According to S&P, slow economic growth and political roadblocks to economic policy making pose risk to sovereign ratings. Currently, India's 'BBB-' long-term sovereign rating is one notch above the speculative grade.

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