Page last updated at 09:48 GMT, Friday, 4 April 2008 10:48 UK

Food prices drive India inflation

Watermelons at a wholesale fruit market in India
India is grappling with rising food prices

Inflation in India has hit a three-year high as a result of spiralling food and energy costs, official figures show.

India's wholesale price index, released weekly, hit 7% for the year up to 22 March, the highest since December 2004.

The government has been taking steps to control prices, banning exports of non-basmati rice and scrapping import duties on cooking oils and maize.

Economists said the data could trigger a rise in interest rates this month, earlier than many had expected.

India's Economic Times says the government is considering a price ceiling on commodities if all other measures fail to bring down inflation - a law last used in the 1970s.

Inflation is beyond anybody's expectations
D K Joshi, principal economist, Crisil

In India, the wholesale price index, which measures inflation at the "factory gate", is more closely watched than the consumer price index because it tracks a wider range of goods.

The consumer price index reflects shop and market prices.

"Inflation is beyond anybody's expectations and I expect further firefighting measures from the government," said D K Joshi, principal economist at Crisil.

"One can forget lowering of interest rates for some time to come."

Record prices of rice, wheat and other foodstuff, along with the sky-high oil price, have fanned inflation worldwide.

This has prompted many governments to impose price controls and curb exports of essential goods.

India has raised the cost of borrowing nine times since October 2004.

Growth is expected to slow this coming financial year to about 8%, its weakest rate of expansion since 2005, but still a robust rate of growth.

In the year ending 31 March 2008, the economy grew 8.7%.

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