India's monthly inflation surges to 8 .56%

India's inflation rose to 8.56% in January 2010 as against 7.31% in December 2009. The Government announced that it had revised November inflation rate to 5.55% from 4.78% forecast earlier. The official Wholesale Price Index (WPI) for 'All Commodities' for January 2010 rose by 0.8% to 248.5 from 246.5 in the previous month. Inflation stood at 4.95% during the corresponding month of the previous year. Build up inflation in the financial year so far was 8.90% compared to a build up of 1.51% in the corresponding period of the previous year, the Commerce Ministry said.

The Reserve Bank of India's (RBI) governor Duvvuri Subbarao said on Saturday that the central bank could not focus on inflation alone and added that the large government borrowing influences monetary policy. At its policy review on January 29, the RBI raised banks' cash reserve requirements (CRR) by 75 basis points to 5.75% but left benchmark lending and borrowing rates unchanged at 4.75% and 3.25%, respectively.

Calls for rolling back the fiscal stimulus and further monetary policy action got louder on Friday as India's industrial production grew at record pace in December 2009. India's industrial production grew by 16.8% in December 2009 from a year earlier, boosted by a 46% increase in consumer durables and a 38.8% jump in capital goods.

A series of other economic data also point to a smart economic recovery that could push inflation beyond the RBI's target of 8.5% for the current fiscal year. Any sharp increase in inflation could make it difficult for the Government to borrow from the market next year, as 10-year benchmark yields are hovering at 16-month highs.