Wholesale Inflation Hits Two-And-A-Half-Year High On Fuel Surge

New Delhi: Wholesale prices in the country rose at the fastest pace in two-and-a-half years in January as fuel prices climbed, reinforcing the Reserve Bank of India's decision last week to move to a neutral policy stance as inflation risks grow.

Prices in wholesale markets rose 5.25 per cent last month from a year earlier, their fastest gain since July 2014, government data showed on Tuesday.

The rise compared with a 3.89 per cent annual gain forecast by economists in a Reuters poll and was faster than a provisional 3.39 per cent jump in December.

Wholesale fuel prices surged 18.14 per cent in January on-year, the fastest since October 2008.

Historically, India has paid more attention to wholesale prices than consumer ones, but the RBI now tracks retail inflation for setting its interest rates.

While headline retail inflation has been under 4 per cent since November, well below the central bank's 5 per cent target for March and medium-term target of 4 per cent, the RBI last week shocked investors by shifting its monetary policy stance to "neutral" from "accommodative", citing upside risks to its inflation target.

While the RBI kept its repo rate unchanged at 6.25 per cent at a policy review, it cited worries over the pickup in global oil prices along with exchange rate volatility.

Global crude oil prices are up nearly 18 per cent since end-November, while the rupee is expected to weaken by nearly 4 per cent from its current levels to 69.50 a dollar in 12 months.

Most economists now expect the RBI to hold rates until at least the second half of next year.

Data on Monday showed India's retail inflation cooled to 3.17 per cent last month, its lowest in at least five years. But core inflation, which excludes volatile good and fuel prices, accelerated.