NEW DELHI, June 13: India’s inflation hit its highest level in over seven years on Friday, stoking expectations of more interest rate hikes that could slow growth and piling pressure on the government as elections loom.

Annual inflation rose to 8.75 per cent for the week ended May 31 the highest since February 2001 from 8.24 per cent a week earlier, according to the Wholesale Price Index, India’s most watched cost-of-living measure.

The increase, driven by higher prices for food, vegetables and manufactured goods like textiles, fed expectations of further monetary tightening that could dampen economic growth in the world’s second fastest-expanding economy.

The central bank “will try to anchor, reduce inflationary expectations,” said Dharma Kriti Joshi, economist at Crisil credit rating agency.

The data came two days after the central bank hiked its leading lending rate, known as the repo rate, by a quarter percentage point to 8.00 per cent, a six-year high.

The latest inflation jump exceeded analysts’ forecasts of 8.28 per cent and was a blow to the government, which desperately wants to tame prices, fearing a voter backlash in national elections due by May 2009.

Inflation could reach double-digits as soon as next week when a sharp hike last week in state-set fuel prices starts being included in the data, analysts said.

The government dithered for weeks about hiking fuel prices, worried about losing voter support, but finally said state oil firms could no longer sustain huge losses caused by record global crude costs.—AFP