Inflation in India hits three-year high of seven per cent

INDIA: Indian inflation accelerated to a more than three-year high of seven percent, data showed on Friday, fanning expectations of higher interest rates that could slow economic growth further.

Annual inflation jumped by over three-tenths of a percentage point for the week ended March 22, driven in part by higher food prices, according to the Wholesale Price Index, India’s most-tracked price monitor.

India has been facing a daunting task in battling inflation, which has been largely propelled by soaring international prices for food, energy and industrial metals.

Inflation, which stood at 6.54 percent in the same period one year ago, was last hit seven percent in early December 2004.

“We expect that the Reserve Bank of India will hike rates in the near term, following the run-up in inflation,” said Goldman Sachs economist Tushar Poddar in a research note.

“We now expect the central bank will hike rates in April, instead of leaving them unchanged.” The numbers will be unwelcome news for the Congress-led government, which owes its upset 2004 win to support from India’s poor masses who have been hardest hit by inflation. Another general election is due by May 2009.

The rise came despite stiff monetary tightening which has pushed interest rates to a six-year high, hurting consumer demand and industrial growth, and was way above the central bank’s declared tolerance level of five percent.

The government has recently been taking steps to curb inflation, scrapping import duties earlier this week on cooking oils and maize and extending a ban on pulse exports.

In its latest move on Friday, the government stopped export incentives on basmati rice to improve domestic supply after previously banning exports of non-basmati rice.

The central bank said this week it was “ready” to take steps to tame inflation.

New Delhi, Friday, AFP