Inflation climbs to fresh 3-½ year high

Enlarge Photo A shopkeeper waits for customers in Kolkata May 6, 2008. Annual inflation rose to a...

Fri, May 9 12:49 PM

By Surojit Gupta

NEW DELHI (Reuters) - Annual inflation rose to a fresh 3-½ year high at 7.61 percent in late April, and analysts said that while moves to boost supplies and curb liquidity would pay off, it would remain high for some time.

Government data showed on Friday the wholesale price index for the 12 months to April 26 rose to its highest level since Nov. 13, 2004, edging up from the previous week's rise of 7.57 percent.

The figure matched a Reuters forecast of economists.

"The fiscal and trade measures taken by the government should start having an impact in the coming weeks. Particularly the cut in steel prices announced by steel producers should reflect in the index," said Sonal Varma, an economist with Lehman Brothers in Mumbai.

Steel firms agreed to trim prices on Wednesday under pressure from the government.

"However, with oil prices still firm, we expect the WPI index to remain above 7 percent in the coming weeks," Varma said.

Rising prices -- especially of food and metals -- have dominated the headlines in recent weeks, forcing the central bank and a government facing a string of state polls this year to unveil a slew of fiscal and monetary measures.

Last month, the Reserve Bank of India announced a 25-basis-point increase in the cash reserve ratio (CRR) to 8.25 percent, its highest level in seven years.

"We expect the RBI to keep policy rates unchanged in 2008, but hike the CRR by at least 50 basis points to manage liquidity," Lehman's Varma said.

Financial markets showed a muted reaction to the data, with the yield on the 10-year federal bond steady at 7.86 percent, while the partially convertible rupee was at 41.38/39 per dollar, unchanged from beforehand.

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