Indian inflation rises to 7-year high

Indian inflation is at its highest level for 7 years. In the year to end of May, wholesale price inflation rose 8.75%, rising from the previous week’s 8.24% and exceeded analysts expectations.

The inflation rate is now at its highest level since February 2001 and exceeds the government’s target of between 5% and 5.5%.

India’s central bank unexpectedly raised interest rates for the first time in 15 months, in a bid to control inflation, lifting its key lending rate by 25 basis points to 8% this week. Analysts fear inflation could exceed 9%, the highest level for 13 years.

Rupa Rege Nitsure, chief economist at Bank of Baroda, said with this kind of runaway inflation, one cannot rule out the possibility of it touching double digits in the next few months.

Petrol and diesel prices were recently increased by 10% which triggered concerns about fuel affordability causing social unrest.

Oil prices are a sensitive political issue in India as even a marginal increase in the price of diesel can feed into much higher food and transport prices.

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