Rising onion costs send India inflation to 7-month high

An onion seller counts Indian rupee currency notes after a delivery at a market in Mumbai on Aug 22, 2013. A four-fold surge in the cost of onions helped push Indian inflation to a seven-month-high last month, fuelling expectations of another in
An onion seller counts Indian rupee currency notes after a delivery at a market in Mumbai on Aug 22, 2013. A four-fold surge in the cost of onions helped push Indian inflation to a seven-month-high last month, fuelling expectations of another interest rate hike as the authorities struggle to get the economy back on track. -- FILE PHOTO: AFP

MUMBAI (AFP) - A four-fold surge in the cost of onions helped push Indian inflation to a seven-month-high last month, fuelling expectations of another interest rate hike as the authorities struggle to get the economy back on track.

The wholesale price index hit 6.46 per cent last month from 6.10 per cent in August - and much higher than analyst forecasts of 6 per cent - driven by surging vegetable and fuel prices.

"Rising input costs have pushed up core inflation," said Bank of Baroda economist Rupa Rege Nitsure.

The scandal-tainted Congress-led government of Prime Minister Manmohan Singh is anxious to tame inflation and revive the economy as it seeks a third term in office with elections due by May next year. The main driver of the surge in inflation was vegetable prices, which rose 18.4 per cent year-on-year, while the cost of onions, regarded as cooking essential, increased 322 per cent owing to a supply shortage. Fuel prices jumped 10 per cent.

India's new central bank governor Raghuram Rajan surprised markets last month by hiking interest rates as inflation began to creep up. Mr Rajan earlier warned he was prepared to take unpopular steps to bring the economy back up to speed.

With inflation well above the Reserve Bank of India's comfort zone of 5 per cent, economists say a further rate rise is likely.

"Concerns over inflation remain. We expect a 25 basis point hike in interest rates," said Mr Dharmakirti Joshi, chief economist with rating agency Crisil.