NEW DELHI, Nov 5: India's inflation rate spiked higher on Friday and analysts forecast it would climb further on the back of a government hike in fuel prices aimed at offsetting the surge in global oil costs.
Inflation, which was just 4.32 per cent in April, jumped by more than a quarter of a percentage point to hit 7.38 per cent in the week to October 23, data showed, snapping a month-long downward trend in Asia's fourth-largest economy.
The inflation figures came a day after the left-backed Congress government hiked oil and cooking gas prices to align them with global prices and brake falling profits at state-run oil refiners.
However, the price hikes in a country which imports 70 per cent of its crude needs drew swift flak from the government's leftist allies, key to the party's survival in parliament, who said it would hit the "common people."
The increases in fuel prices were among the biggest in years. "We'll protest to the prime minister," said D. Raja, national secretary of the Communist Party of India. "If the government doesn't reconsider, we'll go to the people" and launch a nation wide protest.
At the same time, the government decision sent stocks of state-run refiners soaring as investors were cheered by the prospect of higher revenues. The refiners lost $2.2 billion in revenues in the first half of the financial year after they were forced to hold the line on prices.
Shares of state-run Bharat Petroleum jumped 11.72 per cent or 41.70 rupees to close at 397.30, followed by Hindustan Petroleum which added 7.21 per cent or 23.0 rupees to 342, while the country's biggest refiner, Indian Oil, closed at 475.85 rupees, up 30.30 rupees or 6.8 per cent.
"The buying was driven by the fuel price hike as investors feel margins will improve," said Pareen Thakkar, dealer at Dalal and Broacha Stock Broking. The government had delayed raising fuel prices for fear of aggravating inflation, which hit a three-and-a-half year peak in August of 8.32 per cent, as well as concern about alienating its leftist backers.
It was also worried about denting economic growth in farm-dependent India where agricultural output has been hit by patchy monsoon rains. The central bank has warned high crude prices could deal a blow to demand.
"The rise is bound to be inflationary" as an oil hike usually has a cascading effect on all prices, said D.H. Pai Panandikar, economist at the RPG think-tank. "If we take the direct and indirect impact, inflation should rise by a percentage point.
Petroleum Minister Mani Shankar Aiyar said the hike would bridge the gap between the price at which state-owned firms buy foreign oil and the level at which they sell to domestic consumers.
The price of a cooking gas cylinder rose 7.0 per cent to 281 rupees and another five rupees will be added each month until the differential with the international price is erased.
Petrol prices jumped 5.0 per cent to bring them into line with the imported price, while diesel rose 7.0 per cent. Kerosene, however, used by millions of poor households for cooking, was spared a rise in a bid to mute criticism from the government's leftist allies.
"We've asked the government that instead of hiking petroleum product prices, it should cut customs and excise duties on them," communist leader Raja said. The government had been battling to keep a lid on domestic fuel prices but state oil firms, which control virtually all of India's gas stations, were being obliged to sell fuel below the import cost. -AFP
