India inflation gains pace

NEW DELHI (AFP) - – India's inflation jumped in October, according to a new national price measure released Saturday, increasing pressure on the central bank to start reversing aggressive interest rate cuts.

Inflation rose 1.34 percent in October from the same month a year earlier, according to the Wholesale Price Index, calculated by the government for the first time on a monthly basis.

The rate was more than twice the annual 0.50 percent increase logged in September.

The government has begun compiling the Wholesale Price Index, India's most-watched cost-of-living benchmark, on a monthly rather than a weekly basis.

The move is to allow longer time to assemble the figures and give a more accurate snapshot of price movements.

Inflation pressures are resurgent in India, creating a dilemma for the central bank which wants to keep economic growth on track at the same time as check price rises.

The central bank expects inflation to accelerate to 6.0 to 6.5 percent by the end of this fiscal year.

The Reserve Bank of India cut interest rates to record lows to shield the economy from the impact of the global financial crisis.

But economists say accelerating inflation combined with signs of a rebound in Asia's third-largest economy could prompt the bank to begin increasing benchmark borrowing rates in the new year.

"The combination of upside industrial production and inflation surprises is unlikely to do much to calm" the central bank, said HSBC Robert Prior-Wandesforde late last week. "The finger now is on the rate trigger."

The bank cut interest rates to record lows to shield the economy from the impact of the global financial crisis.

India's industrial output jumped by a better-than-expected 9.1 percent in September from a year earlier, data showed Thursday, fuelling hopes that the economy was firmly on the mend.

The central bank took a small first step to reversing monetary stimulus last month when it raised the amount that lenders should invest in government bonds, removing some of the liquidity in the banking system.

But the government is keen to ensure that recovery be fully entrenched before fiscal and monetary stimulus steps are unwound.

A top economic advisor to Prime Minister Manmohan Singh said stimulus measures should remain in place until the next fiscal year in order not to derail recovery.

"Neither fiscal nor monetary policy needs to be changed during the current fiscal year," Planning Commission Deputy Chairman Montek Singh Ahluwalia said.