The headline inflation topped expectations and came within touching distance of double digits in February, making a rate increase by the Reserve Bank of India (RBI) all but inevitable at its scheduled April policy review.
Annual wholesale price inflation accelerated to 9.89 percent in February, the highest since October 2008 and well above the RBI’s end-March projection of 8.5 percent and the 8.56 percent January reading.
The inflation data comes on the heels of a 16.7 percent annual jump in industrial output in January, with the unexpectedly strong economic pickup also backing the case for the central bank to raise policy rates by at least 25 basis points.
“This seals the case for rate hike so we expect both reserve ratio and interest rate hike on or before April policy meeting,” said Ramya Suryanarayanan, an economist with DBS in Singapore.
A Reuters poll had estimated headline inflation in February to be 9.62 percent, and markets were little moved.
While government officials spoke out against raising rates ahead of the past two quarterly Reserve Bank of India meetings for fear of choking off recovery, they have less case for making a similar argument next month as inflation surges and growth broadens.
“It is worrying that inflation always turns out higher than expected, and the fact that there is a huge backward revision is also not good,” Suryanarayanan said.
The December figure was revised to 8.1 percent from 7.3 percent.