Page last updated at 12:56 GMT, Friday, 6 June 2008 13:56 UK

Fuel pushes up Indian inflation

Indian inflation is higher than the government would like

Indian inflation rose higher last month, pushed up by rising fuel prices.

Wholesale inflation in the week to 24 May was 8.2% higher than the same period a year ago.

Annual inflation has risen sharply since March, when it hit 7.7%, and is well above the government's target of between 5% and 5.5%.

Ministers recently raised petrol and diesel prices by about 10%, sparking fears about fuel affordability and resulting social unrest.

Finance minister, Palaniappan Chidambaram, admitted inflation was problematic and said the government was willing to take action to calm prices.


Ministers are under pressure to take specific action to deal with the problem.

Reserve Bank of India Governor, Y.V. Reddy, has already said the central bank was ready to employ the full range of instruments at its disposal to curb inflation.

This really highlights the government's mismanagement in controlling prices
Rupa Rege Nitsure, economist

Rupa Rege Nitsure, an economist at India's Bank of Baroda, said growing inflationary pressure was due to poor government management of the economy.

"This really puts the fire under inflation and highlights the government's mismanagement in controlling prices as they could have done in a calibrated way, rather than by such sudden measures," he said.

Energy costs make up 14.2% of the inflation index and some economists are estimating that the fuel hike will further lift the inflation rate by 50-110 basis points.

In addition to fuel and food price rises, some analysts have forecast that transport and feedstock costs will rise within the next two to three months.

Inflation for the week ending 29 March stood at 7.75%, much higher than the 5% to 5.5% target the central bank set for the 2007/08 financial year.

India imports nearly 75% of its crude oil requirements but subsidises the cost of domestic fuel products to help contain inflation and protect the poor.

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