India August Inflation Accelerates

India's inflation rose at its fastest pace in 13 months in August, reinforcing expectations the central bank will continue with its monetary tightening when it meets Friday.

The wholesale price index rose 9.78% in August from a year earlier, quicker than July's 9.22% increase. The reading was a bit above the median estimate for a 9.70% rise in a poll of 16 economists.

It was the ninth consecutive month that inflation has stayed above 9%, driven by intense price pressures in food articles that have steadily spread to a wider basket of commodities.

"It is a time of stress, not only in India but all over the world, and we shall have to maintain our nerve," Finance Minister Pranab Mukherjee said after the data were released.

The government slightly raised June's inflation reading to 9.51% from a provisional 9.44%, but the revision was small compared with those of previous months and helped calm market worries that provisional readings might be grossly understating inflationary pressures.

The data underscore how strongly price pressures have become entrenched in India's economy, likely prompting the Reserve Bank of India to raise its lending rate again Friday.

"While inflation is still at elevated levels, there is no conclusive data to prove that the downtrend in growth is alarming," said D.K. Joshi, chief economist at ratings firm Crisil, suggesting inflationary concerns still outweigh worries of slowing growth. He expects a 0.25-percentage-point rate increase at Friday's policy review.

Chief Economic Adviser Kaushik Basu said the RBI has a complex task at hand to bring down inflation amid signs of faltering growth. "The RBI will have to balance out these two--controlling inflation and not dampening growth too much."

Considering that the inflation rate has continued to rise despite 11 interest-rate increases in the past 18 months, some policymakers are questioning the effectiveness of the central bank's approach.

Economic Affairs Secretary R. Gopalan said earlier Friday the rate increases have had only a limited impact on inflation, which is mostly driven by supply constraints in the economy.

"While monetary tightening has been able to anchor inflationary expectations up to a point, it has had limited success in lowering inflation to acceptable levels," Mr. Gopalan said.

Still, economists say the RBI has little choice but to raise its policy interest rate by another 0.25 percentage point this week.