MUMBAI -- India is facing a surge in inflation, Reserve Bank of India Governor Duvvuri Subbarao said Monday, comment that will ratchet up expectations of higher than expected monetary tightening at the central bank's rate-setting meeting later in January.
India's food prices have soared in recent weeks, with policy makers admitting tackling the climbing prices is becoming increasingly difficult. The central bank has said there has been a structural shift in food prices as Indians are consuming more protein-based food, which is typically witness to higher price rises.
"Other central bank governors tell me: why don't you give us a bit of your inflation. That shows how desperately they want some inflation and how desperate we are to control our inflation," Mr. Subbarao said.
India's inflation rate accelerated in December as food prices continued to soar, adding to the case for another interest-rate hike when the RBI meets later this month.
The wholesale price index rose 8.43% in December from a year earlier, quicker than November's provisional 7.48% rise and in line with the median estimate of 8.40% in a Dow Jones Newswires poll of 18 economists.
While food inflation is basically a supply-side issue, the RBI has to ensure that it doesn't fuel a more generalized inflation.
Global crude oil prices and other commodity prices have been climbing, thanks to easy liquidity that has been fueled by quantitative easing in the U.S. and other advanced economies.
The RBI in its December review said there was an upside bias to its 5.5% inflation estimate for March.
Economists broadly expect a 0.25 percentage point increase in key policy rates at the Jan. 25 meeting, but some are now factoring in a 0.50 percentage point hike.
A. Prasanna, an economist at ICICI Securities Primary Dealership, said that the central bank will need to "keep hiking rates and [keep] maintaining a hawkish bias."
Mr. Subbarao says India's economic recovery is becoming more broad based, but that the RBI has to maintain a calibrated monetary policy "taking into account demands of inflation management and demands of supporting recovery.
