India's inflation hits 7-year high of 8.75%
Posted: 13 June 2008 1736 hrs

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NEW DELHI - India's inflation has hit its highest level in more than seven years, data showed Friday, prompting forecasts of more monetary tightening and piling pressure on the government as elections loom.

Annual inflation in Asia's third-largest economy rose to 8.75 percent for the week ended May 31, the highest since February 2001, from 8.24 percent a week earlier, according to the Wholesale Price Index, the most watched Indian cost tracker.

The increase, driven by higher prices for food, vegetables and manufactured goods, stoked expectations of further monetary tightening by India's central bank.

The Reserve Bank of India two days earlier hiked its leading lending rate by a quarter percentage point to 8.00 percent, a six-year high, after twice boosting the cash reserve ratio -- the percentage sum commercial banks must keep on deposit in a bid to check inflation-fuelling credit growth.

The latest inflation jump exceeded analysts' expectations that the rate would be about 8.30 percent.

Analysts expect inflation to rise further in coming weeks to double digits following last week's sharp hike in state-set fuel prices aimed at stemming huge losses at publicly-owned oil firms due to surging global crude costs.

The Congress party-led coalition government is desperate to tame inflation, fearing a voter backlash over prices in national elections looming by May 2009.

Congress has already suffered a string of state poll defeats with increasing prices, which have hit India's poor masses hardest, cited as a key factor. - AFP/ir