NEW DELHI, May 19 (Xinhua) -- Inflation continues to climb in India as people feel the pinch, driving an increase in savings amid forecasts of further spikes in food prices and other essential items.
WPI THREE-DECADE HIGH
According to the latest data released by the federal government, the Wholesale Price Index (WPI) rose 15.08 percent in April, a three-decade high, up from 14.55 percent in March.
In April, the Consumer Price Index (CPI) was 7.79 percent, the highest in eight years, compared with 6.95 percent the previous month and 4.23 percent in April last year.
The cost of living is rising in India, with bank loan interest rates, fuel (petrol, diesel, LPG and CNG) and food prices all surging.
The Indian government is taking measures to ensure food supplies and no hoarding of essential food items to check rising inflation. The federal government has curbed wheat exports as one such major measure.
The value of the Indian Rupee has fallen to its lowest level against the U.S. dollar. On Tuesday, the Indian currency hit a new record-low at 77.69 after it depreciated by 14 paise against the U.S. dollar, mainly due to persistent foreign fund outflows and elevated global crude oil prices. The currency had previously breached the 77-mark against the U.S. dollar in March for the first time ever.
The most common reasons cited for Indian Rupee's falling value are the stronger position of the U.S. dollar, sharp sell-off in equity markets, elevated crude prices and India's rising inflation.
BANK LOANS GET DEARER
Bank loans have become increasingly costly in India, especially after the Reserve Bank of India (RBI), the country's central bank, raised key interest rates by 40 basis points to tame surging prices. The move was seen as acting in tandem with a similar move by the U.S. Federal Reserve.
"Given the inflation in the world, and the fact that all central banks wish to fulfil their primary responsibility of maintaining price stability, it is no surprise that central banks, including the RBI, have chosen to raise interest rates," said Tulsi Jayakumar, professor of economics at the S.P. Jain Institute of Management & Research.
"It was not a question of whether, but a question of when, and obviously the decision has been influenced by the U.S. Fed rate hike. The latter itself has been in response to the 40-year high headline inflation of 8.5 percent," she noted, adding it is unavoidable that the decision to increase interest rates in the short term might cause headwinds.
Yet Sunil Sinha, principal economist and director of India Ratings and Research believes that it is not appropriate to conclude India's rate hike move followed the U.S. Fed's footsteps. In his view, India raised interest rates due to "domestic compulsions."
"One would know that Indian currency is not a world currency, and the world trade happens in USD denominations," he said. "Foreign investments/funds/bonds arriving in India depend on interest rates in India, and they have to be above U.S. interest rates. Only then the investors find it profitable/beneficial, else (if the rates are same) the arbitrage is gone."
According to figures released by the Centre for Monitoring Indian Economy, an independent think tank, overall unemployment in India swelled last month.
According to a recent report by the think tank, the country's unemployment rate jumped to 7.83 percent in April from 7.6 percent in March. The urban unemployment rate rose to 9.22 percent in April from 8.28 percent in the previous month, while rural unemployment slipped to 7.18 percent from 7.29 percent in March.
Economists say that job opportunities fell because of sluggish domestic demand and a slow economic recovery amid rising prices. Across the country, the highest unemployment rate, 34.5 percent, was recorded in the northern state of Haryana, followed by 28.8 percent in the western state of Rajasthan.