(RTTNews) - India’s inflation for the week ended June 28 again rose to 11.89%, recording the highest level since 1995, compared with 11.63% in the previous week, as per data published by the Ministry of Commerce and Industry. The inflation based on the wholesale price index rose mainly due to higher prices of food and commodity prices, such as cement and edible oil.

Despite attempts made by the government to tame price rise, items like cement and edible oils became costlier during the week.

It is the 20th consecutive week that the inflation rate has been above 5.5%, the central bank’s target for the fiscal year 2009. In comparison, the rate of inflation stood at 4.42% during the corresponding week in the previous year.

The official Wholesale Price Index for ‘All Commodities’ for the week ended June 28, 2008 rose by 0.4% to 238.1 from 237.1 for the previous week.

The main index for Primary articles, which has a weightage of 22.02%, rose by 0.9%, while the index representing fuel, power, light and lubricant, having an overall weightage of 14.23%, remained unchanged at its previous week’s level of 374.4. The index of Manufactured Products, which has a major weightage of 63.75%, rose by 0.4%.

The wholesale price index is more closely watched in India than the consumer price index, which is published monthly, because it covers a higher number of products and is published weekly.

During the week under review, the index for primary articles showed that the prices of maize and niger seed declined, while the prices of castor seed, linseed and sunflower, raw cotton, copra, rape & mustard seed, fruits & vegetables and jowar moved up.

Among manufactured products, the prices of basic pig iron and foundry pig iron, steel sheet, plates & strips, lead ingots, MS bars & rounds, penicillin, texturised yarn, cotton seed oil and imported edible oil decreased, whereas the prices of ammonium sulphate n content (34%), telephone instruments (19%), ampicillin trihydrate(15%), coconut oil (11%), cotton yarn-’hanks (9%), polyester staple fibre (8%), cranes and air conditioners (6%) and cement increased.

Annual average rate of inflation for the week ended May 03, 2008, has been revised to 8.73% from the provisional estimate of 7.83% reported earlier.

The Government in the past has taken several steps to check rise in commodity prices and to contain inflation. Surging inflation and a lower-than-expected industrial output data for May 2008 are prompting the Government to consider imposing export curbs or duties on essential commodities.

Raising inflation may also force Reserve Bank of India to further hike short-term interest rates as well as statutory deposit requirements at its review meeting slated for July 29. The apex bank has already increased repo rate and cash reserve ratio by 0.5% each to tame inflation on June 24.

In the midst of reports that global crude prices may touch $170 per barrel, industry body Assocham’s study on ‘inflation and interest rates’ revealed that the inflation might peak to 14% to 14.5% level by the end of this year. This could lead to further tightening of monetary policy, pushing the already high interest rates to an upper level.

The study further indicated that if the lending rates go up by another 50-100 basis points, non-food credit off take may come down to 19%-20% during the current fiscal year and home loan growth may dip by 5%-7%.

Despite the increase in deposit rates effected since July, and negative sentiment in the equity markets, the current inflation may reduce the deposit growth to 20% in 2008-09, the study said.

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