NEW DELHI (AFP) - India's inflation rate accelerated to a 44-month high of
nearly eight percent on Friday, dealing a fresh blow to the government
which
fears a voter backlash.
Annual inflation climbed more than two-tenths of a percentage point to
7.83
percent for the week ended May 3 from 7.61 percent the previous week,
according to the Wholesale Price Index, India's closest watched cost
monitor.
The rise, which exceeded analysts' expectations of around 7.5 percent, was
mainly due to price increases of staple foods like fruits and vegetables
and
manufactured goods.
Both India and China, whose economies are the world's two swiftest
expanding, are battling to wrestle down inflation, which has been fed by
high food costs and demand from increasingly affluent consumers.
India's inflation rate was last hovering around the 7.8 percent mark in
September 2004 while China's inflation is already close to 12-year highs
of
8.5 percent.
India's inflation "situation is indeed worrying," said Finance Minister
Palaniappan Chidambaram, who warned steel and cement manufacturers of more
unspecified "administrative measures" if price cuts they have announced
are
not enough to help tame inflation.
The steel and cement sectors account for 12 per cent of overall inflation.
The government has already slashed im****t duties on steel and slapped
ex****t
duties on steel products to boost domestic supplies.
Inflation could be headed even higher, especially with the rupee declining
against the dollar amid slackening foreign appetite for Indian assets --
making im****ts more expensive, analysts warned.
The value of the Indian currency was trading at 13-month lows of 42.6
rupees
to the dollar after the inflation numbers stoked fears of more monetary
tightening that would slow the economy further and prompt a flight of
foreign investor funds.
The rupee looks set for its worst monthly decline in a decade, say
analysts
who forecast the currency could weaken to 43 to the dollar in coming
weeks.
"If oil and food commodity prices continue to rise, there is a significant
risk that inflation will hit double-digits in the not-too-distant future,"
said Robert Prior-Wandesforde, analyst at HSBC in Singa****e.
He forecast a 25 basis point rise in India's leading repo short-term
borrowing rate, already at a six-year high of 7.75 percent, later this
year.
The Congress-led government has taken a series of steps in a bid to cool
inflation to around four percent to ****eld India's poverty-stricken m*****
from inflation before it faces a general elections due in a year.
It has reduced im****t levies and suspended futures trading in staple foods
such as chickpeas and wheat. Futures contracts involve betting on future
price movements of such items as commodities and shares.
The central bank has also been on an aggressive monetary tightening drive
which has slowed the growth of Asia's third-largest economy.
Industrial output grew at its slowest pace in six years in March as
tighter
credit to stem rising inflation hit manufacturing, data this week showed.
Foreign fund share sales have totalled a net 2.51 billion dollars so far
this year compared with purchases of 2.87 billion dollars during the same
period in 2007.
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