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India's inflation rises more than 9%

By Sumnina Udas, CNN
An Indian pedestrian walks past a hoarding of a multi-brand store offering free gifts on purchases in Mumbai on June 14.
An Indian pedestrian walks past a hoarding of a multi-brand store offering free gifts on purchases in Mumbai on June 14.
  • India's inflation rate climbs to 9.06%
  • The Reserve Bank of India meets Thursday
  • It is expected to increase interest rates
  • That move may slow growth in the economy
  • India
  • Inflation Rate

New Delhi (CNN) -- India's inflation climbed to 9.06% in May from a year earlier, government data showed on Tuesday, fueling expectations of a further increase in interest rates.

The country's benchmark wholesale price index, which is used as a measure of inflation in India, rose a higher-than-expected 9.06% after an 8.66% jump in April.

The data from India's Ministry of Commerce showed the acceleration was driven by an increase in prices of manufactured goods.

India's stubbornly high inflation rate is adding pressure on the country's central bank to raise its interest rates despite a slowdown in economic growth.

"Higher inflation rates mean the Reserve Bank of India is going to take further steps to increase interest rates and that may have a negative impact on investor sentiment," secretary general of the Federation of Indian Chambers of Commerce and Industry Dr. Rajiv Kumar said.

The Reserve Bank of India is meeting on Thursday and is expected to boost interest rates for the tenth time in 16 months.

The central bank's previous rate increases have made little difference to the cost of living in India.

Analysts predict the RBI will increase rates by 25 points and say the government's priority is to tame inflation even if it is at the expense of economic growth.

"I'm hoping they will only raise it by 25 points and not 50 points as there is already a downward bias in the economy, and you need a minor push rather than a shove," Kumar said.

Reserve Bank Governor Duvvuri Subbarao said in a statement last month that bringing the current elevated rates down should "take precedence even at the cost of some growth in the short run."

The government has delayed a decision to hike diesel prices fearing it would further stoke inflation.

Asia's third largest economy grew 7.8% from January to March, the slowest pace in five quarters.

Analysts say the slower growth is making it harder for the second-fastest-growing major economy in the world to pull hundreds of millions of people out of poverty.