Inflation hits a 13-year high at 11.05 per cent; FM blames it on fuel price hike news
20 June 2008

Mumbai: The annual rate of inflation based on the wholesale price index soared to a 13-year high hitting 11.05 per cent for the week ended 7 June against 8.75 per cent in the previous week.

Inflation had hit a high of 11.11 per cent on 6 May 1995.

The current spike came after a 10 per cent hike in fuel prices announced by the government on 4 June.

Besides fuel, prices of food products, particularly edible oil and manufactured goods also rose, adding to the pressure on price line.

''These are difficult times. Government is aware of people's difficulties, but fuel price hike was unavoidable,'' finance minister P Chidambaram said.

The communists, however, slammed the government for not heeding to their advice to reduce duties on crude and petro fuels rather than raise prices.

The market was quick to react. The Bombay Stock Exchange sensitive index tanked about 350 points, reflecting the investors' nervousness and expectations of further monetary tightening by the Reserve Bank of India.

Analysts expect the RBI to further raise its short-term lending rate to banks. The central bank had only last week raised its repo rate by 25 basis points to 8.0 per cent.

A further hike in RBI lending rates would prompt a hike in bank lending rates, which in turn could add to the costs of consumer loans and home finance and drive up prices further.

The benchmark 10-year government bond yield rose 8 basis points to 8.62 per cent, while the benchmark stock index was down 2 per cent after the data.

Traders said the Reserve Bank intervened, selling dollars to stop the rupee from weakening past 43.00 a dollar.


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Inflation hits a 13-year high at 11.05 per cent; FM blames it on fuel price hike