India's March inflation rose more than expected to nearly 9 percent, as manufacturing and fuel costs increased, government data showed Friday, adding to worries about pricing pressures across emerging Asia.
The International Monetary Fund warned this week that emerging Asia is in danger of overheating as rapid growth, high output and loose monetary policy push prices up. China said Friday that March inflation hit a 32-month high, despite official efforts to cool prices, and central banks across the region are expected to keep hiking rates despite predictions of slower growth in the wake of Japan's crippling quake and tsunami.
The latest data from India suggest that the price problem in Asia's third largest economy has become a structural issue, driven by rising incomes and a failure to increase the supply of goods fast enough to meet fresh demand, rather than by volatile food and fuel prices alone.
Even as demand has soared, underinvestment, policy and regulatory hurdles, and, some argue, long delayed economic reforms have contributed to supply bottlenecks.
"Inflation is in the alarm zone," Standard Chartered analysts wrote in a note. "The role of structural economic changes in stoking inflation cannot be overlooked."
A spate of high profile corruption scandals has weakened the ruling Congress Party coalition and further slowed the already glacial pace of Indian policymaking. Protests from opposition lawmakers nearly froze India's parliament during the winter session, with the lower house only able to function 5 percent of its scheduled time, according to Standard Chartered.
Meanwhile, India's central bank has been aggressively battling inflation, which has remained stuck above 8 percent for the past 14 months, despite interest rates hikes totaling 3.5 percentage points since March 2010. Friday's data is likely to encourage the central bank to continue monetary tightening.
India's March inflation rose to 8.98 percent from 8.31 percent in February and was much higher than expected. Analysts surveyed by FactSet had predicted, on average, an 8.36 percent rise in prices for March.
The government also said January inflation was 9.35 percent, rather than 8.23 percent as previously reported.
Food prices in India have softened — falling near 1 percent from February — thanks to a record crop output. But India remains vulnerable to global commodities prices. Despite regulated coal, kerosene, diesel and cooking gas prices, fuel and power costs rose 3.9 percent in March from February, the government said.
The emerging worry is in India's manufacturing sector, where the cost of goods was 1.4 percent higher in March than February. Car makers have been raising prices on higher input costs of steel. Spiking cotton prices are also driving up the cost of garments.
Rising prices are feeding wage pressure in India, with companies forced to offer double digit pay hikes in 6 of the last 7 years to hold on to talent, according to Standard Chartered. The government also recently hiked pay under its employment guarantee program for the rural poor by 17 percent to 30 percent, further stoking demand, especially for food.
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