Annual inflation rate in India edges towards 8 percent; FinMin "concerned"

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With inflation touching a new 42 months high, P. Chidambaram said the rise was of "great concern" but added that inflation will moderate once the effect of the rollback of steel and cement prices is felt. This is the highest since Nov. 6, 2004 when it reported 7.93 percent. Last week, the finance minister said the rise in inflation was "not statistically significant."

Rising inflation, coupled with slowdown of India's industrial production growth, which declined to a six year low, have led analysts to speculate that the central bank would stay away from tightening monetary policy.

To battle inflation, the government has already announced a slew of fiscal measures like scrapping import duty on crude edible oils and banning export of cement, non-basmati rice and pulses even as it managed to persuade steel and cement producers not to raise prices.

The government also banned earlier this month, futures trading in rubber, chana (chick pea), potato and soybean oil for four months in an attempt to contain the price rise in essential commodities.

In a bid to drain out excess liquidity from the market, India's central bank, the Reserve Bank of India (RBI) has also tightened cash conditions by raising its cash reserve ratio (CRR), or the proportion of reserves the banks must keep with the central bank, by 25 basis points (0.25 percent) to 8.25 percent with effect from May 24 while keeping other official rates intact.

Government data showed the food articles index rose by 0.5 percent, the fuel and power index by 0.8 percent and the manufactured products index grew by 0.3 percent. During the week, prices of coffee, maize, fruit and vegetable, cardamom and spices rose. Among the manufacturer food items prices of coconut oil, atta, oilseeds increased. Prices of some industrial fuels like naphtha, furnace oil and light diesel oil also shot up. However, prices of cement, iron and steel fell (mainly due to government intervention).

According to Chidambaram, India's inflation is "imported," i.e. record-high rise in global crude oil price and global economic slowdown are making their effects felt in the Indian economy.

"These are difficult times. The movement from 7.61 percent to 7.83 percent is indeed worrying but amidst dark clouds there is a silver lining," the finance minister said, adding that the people should have faith in the economic measures taken by the government and "continue to be patient."

"Of course, the rise is a bit of a concern but let's just continue keeping our focus ahead," he said.

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