Indian inflation shot into double digits in early June to a 13-year high, as higher fuel prices fed into the data, driving bond yields up and stocks down on mounting expectations of more action from the central bank.
Annual wholesale price inflation, India's most widely watched measure, rose 11.05 per cent in the 12 months to June 7th, its highest since May 1995 and far outstripping forecasts for 9.82 per cent, data released today showed.
The Reserve Bank of India made a surprise interest rate rise last week, its first in more than a year, after a government decision to increase state-set fuel prices and economists said more monetary tightening was likely in a bid to calm inflationary expectations.
The benchmark 10-year government bond yield jumped 8 basis points to 8.62 per cent, while the benchmark stock index was down 2 per cent after the data. Traders said the central bank sold dollars to stop the rupee weakening past 43.00 per dollar.
The inflation rate was last this high in the week of May 6th, 1995, when it stood at 11.11 per cent. Continuing a trend of sharp upward revisions, inflation for the week ended April 12th was revised up to 7.95 per cent from 7.33 per cent.
India's key lending rate, the repo rate, stands at 8 per cent, its highest in 5-½ years, after a 25 basis point increase last week.
Inflation has been driven largely by rising oil, metal and food prices on world markets and earlier this month the communist-backed ruling coalition, which has hesitated to raise fuel prices because of upcoming elections, bit the bullet and raised petrol and diesel prices by about 10 per cent.