India's inflation hits new 13-year peak
Posted: 21 August 2008 2337 hrs

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NEW DELHI : India's inflation has accelerated to a 13-year peak, official data showed Thursday, fuelling expectations of more monetary tightening.

Annual inflation jumped to 12.63 percent for the week ended August 9, from 12.44 percent for the previous week, according to the Wholesale Price Index, India's most-watched cost-of-living monitor.

The inflation rise announced late Thursday was in line with analysts' forecasts, but far above the central bank's end-of-year target of seven percent.

The increase was bad news for the ruling Congress-led coalition, which is anxious to control prices. It fears a backlash in national elections due by May 2009 from the poor masses, who have been hardest hit by price rises.

Inflation has nearly tripled from 4.39 percent a year ago, reaching its highest level since the current inflation series began being compiled 13 years ago.

The Reserve Bank of India has raised rates three times since June in a continuation of an aggressive tightening policy that began in 2004 and which has slowed growth in Asia's third-largest economy.

The bank's key short-term lending is now at nine percent -- a seven-year high.

Last week, Prime Minister Manmohan Singh's Economic Advisory Council forecast inflation could reach 13 percent before beginning to taper. But some private economists have said it could hit 15 percent.

The council warned that high inflation in tandem with the global economic downturn could slow India's growth to 7.7 percent in the financial year to March 2009 -- its weakest in four years.

The economy expanded by nine percent last year and 9.6 percent the previous year.

Analysts say they expect at least one more round of monetary tightening before inflation starts to stabilise.

Earlier, India's benchmark stock index, the 30-share Sensex, tumbled 434.5 points or 2.96 percent to close at 14,243.73 as rising oil prices fuelled inflation worries and expectations of monetary tightening.

"Inflation concerns are increasing. We expect inflation to rise further towards the end of the third quarter," said Siddhartha Sanyal, an economist at Edelweiss Securities.

- AFP /ls