India’s wholesale prices rise 5.25% in January
Other | Photo Credit: Reuters

India's wholesale prices rose at the fastest pace in two-and-a-half years in January as fuel prices climbed, reinforcing the Reserve Bank of India's decision last week to move to a neutral policy stance as inflation risks grow.

Prices in wholesale markets rose 5.25 percent last month from a year earlier, their fastest gain since July 2014, government data on Tuesday.

The rise compared with a 3.89 percent annual gain forecast by economists in a Reuters poll and was faster than a provisional 3.39 percent jump in December.

Wholesale fuel prices surged 18.14 percent in January on-year, the fastest since October 2008.

Historically, India has paid more attention to wholesale prices than consumer ones, but the RBI now tracks retail inflation for setting its interest rates.

While headline retail inflation has been under 4 percent since November, well below the RBI's 5 percent target for March and medium-term target of 4 percent, the central bank last week shocked investors by shifting its monetary policy stance to "neutral" from "accommodative", citing upside risks to its inflation target.

While the RBI kept its repo rate unchanged at 6.25 percent at a policy review, it cited worries over the pick-up in global oil prices along with exchange rate volatility.

Global crude oil prices are up nearly 18 percent since end-November, while the rupee is expected to weaken by nearly 4 percent from its current levels to 69.50 a dollar in 12 months.

Most economists now expect the RBI to hold rates until at least the second half of next year.

Data on Monday showed India's retail inflation cooled to 3.17 percent last month, its lowest in at least five years. But core inflation, which excludes volatile good and fuel prices, accelerated.

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