Indian inflation up to 3.75-pct; warnings on money supply

Dilshan Wirasekara, Chief Executive Officer of First Capital Treasuries PLC

NEW DELHI, Dec 14, 2007 (AFP) – India’s annual inflation rate jumped unexpectedly nearly three-quarters of a point to 3.75 percent on rising fuel and food prices, official data on Friday showed. Inflation rose to 3.75 percent for the week ended December 1 from 3.01 percent the previous week, according to the wholesale price index, India’s most watched cost-of-living monitor.

The rise was driven by a 16 percent hike in aviation fuel, price hikes in other fuels as well as smaller increases in some food items.
Annual inflation stood at 5.56 percent a year ago.

Inflation has fluctuated in recent weeks but is still well below the central bank’s target of close to five percent for the fiscal year to March 31, 2008.

“Although there is no hike in domestic fuel prices, the inflation is expected to rise in coming months due to a continuous rise in money supply which is currently at above 23 percent,” India’s Institute of Economic Growth said in a report.

But the sharp week-on-rise has left economists sticking by their forecast of no swift cut in interest rates as the central bank fears high global oil prices could trigger a rise in state-set domestic fuel prices and is concerned about