ndia inflation surges to 3-year high

Indian inflation accelerated to a more than three-year high of seven per cent, data showed on Friday, fanning fears of interest rate hikes that could slow growth further in Asia's third-largest economy.

Annual inflation quickened 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 cost-of-living monitor.

The country of 1.2 billion has been facing a daunting task in seeking to keep food and other goods affordable, especially for its poor masses, with inflation mainly propelled by soaring world prices for food, energy and metals.

Inflation - which has more than doubled from a trough of 3.1 per cent in October - last touched 7 per cent in early December 2004 and is way above the central bank's declared tolerance level of 5 per cent.

'The (inflation) hydra grows with higher global commodity prices passing through to local prices being the primary cause,' said Tushar Poddar, Goldman Sachs vice-president of Asia economic research.

The surge is not a 'temporary spike,' Poddar added, warning India as a 'large net importer of commodities, will continue to face elevated prices.'

Analysts forecast additional fiscal moves by the government, including more import duty cuts and higher export taxes but added these could not solve what was a global problem. Some saw inflation at eight percent in coming months.

Poddar forecast a 50 basis point rise in the central bank's benchmark repurchase or overnight lending rate, already running at a six-year high of 7.75 per cent to primarily arrest inflationary expectations.

'We also expect the central bank to encourage further rupee appreciation' to make imports cheaper, he said.

Source: Trade Arabia