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Sep 15, 2010 at 12:14am IST

India's August inflation eases to 8.5 per cent

Mumbai: India's headline inflation eased to 8.5 per cent in August from a revised 9.8 per cent in July, in part due to a change in the way the index is calculated, government data showed on Tuesday.

Under the old data series, August inflation would have been 9.5 per cent. This time last year, inflation was just 0.3 per cent. Despite two months of slowing, inflation remains much higher than policymakers would like and some economists said the central bank's four interest rate hikes this year should have done more to cool prices.

Much stronger than expected industrial production in July helped drive a surge in Indian stock markets and has added to pressure on the central bank to continue to raise rates. India's benchmark Sensex index continued its climb on Tuesday, up 0.8 per cent to 19,369.38 in midday trade, after closing at a 32-month high on Monday.

India's August inflation eases to 8.5 per cent

Despite two months of slowing, inflation still remains much higher in the country.

Standard Chartered's Anant Naarayan told CNBC-TV18 that he still expects the Reserve Bank of India to hike key rates by a quarter of a percentage point when it meets on Thursday.

"It's a tough call, but the governor will probably go ahead with a 25 basis point hike," he said. India's troublesome food inflation continued in August, rising 14.6 per cent over last August, and fuel and power prices rose 12.6 per cent, up from a 9.7 per cent decline this time last year.

The cost of manufactured products rose 4.8 per cent over last August, driven by higher cotton textile, metal and iron prices. The new inflation series — which the government created in an attempt to better reflect real prices — uses 2004-2005 as a base year instead of 1993-1994.

It also incorporates a broader basket of goods, including common consumer items like mineral water, computers, scooters, refrigerators, microwave ovens, television sets, gold and silver.

The government also said June inflation, under the old series, was 11.1 per cent, instead of 10.6 per cent as initially estimated.