New Delhi: Initial euphoria generated by the soft budget and Sixth Pay Commission recommendations may soon skittle out, with inflation rate soaring to a 13-month high of 6.68 per cent and may even force RBI to raise interest rates next month to contain prices.

Inflation rate was 6.73 per cent on February 3, 2007 due to high prices of essential commodities including vegetables, edible oil, food items and also metals.

During the week ended March 15 this year, it touched 6.68 per cent, compared to 5.92 per cent a week ago. The rate was 6.56 per cent during the corresponding period last year.

After remaining close to 4 per cent for many months, wholesale price based inflation has begun moving upwards, and has raised concerns among political circles as well.

"Although inflation rate was expected to remain at above 6 per cent, but 6.68 per cent mark is shocking, which has been led by a surge in global commodity and food prices coupled with higher vegetable prices at home," said HDFC Bank Chief Economist Abheek Baruah.

He said the government and the Reserve Bank would have to take fiscal and monetary measures to contain inflation, which could otherwise move beyond 7 per cent as well.

RBI is scheduled to announce its annual monetary policy on April 29,and decide on the benchmark interest rates keeping in view the rising inflation and the need to maintain high growth.

The prices of steel products have gone up by 4.4 per cent to 10.9 per cent within a week, while prices of vegetables moved up by 2.5 per cent, edible oil by 0.7 per cent within a week.

Naphtha prices went up by 7 per cent, followed by 2 per cent rise in furnace oil and one per cent increase in electricity, light diesel oil for the week ended March 15.

Baruah said the inflation rate could have been much higher had the government decided to fully pass on the hike in international crude oil price, which has crossed 110 dollars a barrel.

Government had increased the per litre price of petrol and diesel by Rs 2 and Re 1 respectively on February 14, to partially pass on the hike in crude oil prices.

In line with the global trends, metal prices continued to be more expensive. While joist and rolls rose by a whopping 34 per cent, heavy light structural were up by 32 per cent, bright bars by 24 per cent, basic pig iron and foundry pig iron by 17 per cent each and steel sheets, plates and strips by 13 per cent each.

Rating Agency Crisil's Principal Economist D K Joshi said, "The price could moderate following government's fiscal measures like cut in customs duty on edible oil, export subsidies on basmati rice, steel and other items."

RBI may not raise interest rate following concerns over growth rate, and it may continue with the present stance on interest rate, he said.

Analysts said high inflation rate would also have "cost-push" impact on the manufacturing sector, leading to rise in prices of consumer goods.

They said the Sixth Pay Commission recommendations, and enhanced provisions for social sectors in the Budget have also marginally raised expectations about high inflation.

Baruah pointed out that it would also have a negative impact on the bond market, where yields on 10 year bonds are expected to go up to 8 per cent from the present rate of 7.85 per cent.

Source : PTI