India’s annual inflation rate unexpectedly rose in the second week of April on higher food and manufactured product prices, but analysts said inflation would turn negative in coming weeks paving the way for more rate cuts. The wholesale price index, India’s most widely watched inflation measure, rose 0.26% in the 12 months to 11 April, above the previous week’s rise of 0.18% and a forecast of 0.09% in a Reuters poll. “Demand is not crumbling as much as we feared it would,” said Indranil Pan, chief economist at Kotak Mahindra Bank. “Though WPI will eventually definitely go into negative territory ... this will not be a deflationary situation.” The Reserve bank of India (RBI) cut key rates on Tuesday for the sixth time in seven months and urged commercial banks to follow suit to shore up faltering growth that has been hit harder than expected by the global downturn. It had also said that inflation was expected to slip into negative territory as the index had risen sharply last year, but there would not be a deflationary situation with consumer prices still running high. The wholesale price based-inflation rate has fallen sharply since peaking at just under 13% in August, but annual consumer price inflation in February was 9.63%, as prices of food products remain firm. The central bank, which has slashed its key lending rate by 425 basis points since October, could come under pressure to lower the rates again, analysts said. “It (inflation) will go down further. The scope for rate cut is there. I think, there is still enough room,” said DK Joshi, principal economist of domestic rating agency Crisil. The 10-year benchmark bond yield rose 2 basis points after the data was released, while the partially convertible rupee fell slightly to 50.22/23 per dollar from 50.17/18.

Source