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India's inflation slows but more monetary tightening seen

AFP - 1 hour 44 minutes ago

NEW DELHI (AFP) - - India's inflation slowed for the first time in a month but remained stuck at 13-year highs and economists said they expected another round of monetary tightening to tame prices.

Annual inflation slipped to 12.40 per cent for the week ended August 16 from 12.63 percent, helped by a softening of world crude prices, according to the Wholesale Price Index, India's most-watched cost-of-living monitor.

The drop represented "early signs of moderation" in prices, the finance ministry said in a statement.

But economists said they believed India's central bank would still tighten monetary policy at least one more time to try to bring inflation under control.

"My sense is that there is still one more round of tightening in store and the central bank wants to be on top of things," said Dharma Kriti Joshi, principal economist at Crisil credit rating agency.

The inflation rise announced late Thursday was below analysts' forecasts of 12.6 percent but far above the central bank's end-of-year target of seven percent.

The ruling Congress-led coalition is anxious to control prices, fearing a backlash in national elections due by May 2009 from the poor masses, who have been hardest hit by rises.

Inflation has nearly tripled from 4.39 percent a year ago and now is riding around the highest levels since the current inflation series began being compiled 13 years ago.

The Reserve Bank of India has raised rates three times since June in a continuation of an aggressive tightening policy that began in 2004 and which has slowed growth in Asia's third-largest economy.

The bank's key short-term lending is now at nine percent -- a seven-year high.

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