RBI: data underestimates inflation

By Vidya Ranganathan

SINGAPORE (Reuters) - India's inflation rate, which is at its highest in three and a half years, is totally unacceptable and the official data underestimates the actual rate of inflation, its central bank chief said on Tuesday.

The 10-year benchmark bond yield briefly rose 3 basis points to a three-week high of 7.97 percent after the comments as traders speculated the Reserve Bank of India (RBI) would not relax its inflation guard any time soon to stimulate slowing growth.

India's wholesale price index rose an annual 7.83 percent in the week ended May 3, its highest since November 2004, and economists say the actual rate may be closer to 9 percent due to sharp upward revisions in provisional readings recently.

"Yes, it underestimates the inflation number. There are underlying inflation pressures," RBI Governor Yaga Venugopal Reddy said in response to a question on whether oil subsidies depress the actual inflation figure.

"The current high level of inflation is totally unacceptable, especially in terms of impact on inflationary expectations."

The government sets retail prices of petrol and diesel and has raised them only once this year, by 3.3 to 4.6 percent in February, even though international crude prices have risen about 27 percent since the start of the year.

The central bank often says pass-through of high global oil prices is incomplete, complicating policy making.

India publishes wholesale price inflation data on a weekly basis. Preliminary readings are later revised and last week the data for March 8 was revised to 7.78 percent from 5.92 percent.