NEW DELHI, June 27:- India’s inflation rate jumped to 11.42 per cent in mid-June, its highest in more than 13 years, and analysts said the central bank could follow up two rate increases this month with more policy tightening as prices climb.

The wholesale price index rose 11.42 per cent in the 12 months to June 14, up from 11.05 per cent a week earlier to its highest since annual numbers in the current series became available in April 1995, data showed on Friday.

Inflation will remain in double digits until the end of the calendar year. In order to reinforce its policy stance, the RBI will hike rates in the course of the year, said A.

Prasanna, analyst with ICICI Securities.

We expect inflation to head higher in the coming months

and peak somewhere between 12 to 13 per cent, he said, while Bank of Baroda chief economist Rupa Rege Nitsure saw it peaking at 13.5 to 14 per cent.

The Reserve Bank of India’s aggressive monetary tightening will continue, she said.The surge in inflation has heaped political pressure on the communist-backed ruling coalition ahead of key state elections later this year and federal polls scheduled for 2009.

The government has cut duties on crude and other items and curbed exports of rice as it grapples to tackle one of its biggest policy challenges during its four years in power.

Inflation spiked into double digits in early June after state-set fuel prices were increased by about 10 per cent.

The latest rise in the inflation index was driven by a 3.6 per cent rise in mineral prices, as well as increases in costs of some food articles, manufactured products and energy.

The way we calculate inflation, even if prices completely stabilise now we will have double-digit inflation for some time, Subhashis Gangopadhyay, adviser to Finance Minister Palaniappan Chidambaram, told reporters, adding the government would have to wait and watch if more central bank action was needed.

Financial markets showed little surprise at the number, which came in above market expectations of 11.18 per cent, as a local paper had reported in an un sourced article on Friday morning the inflation figure was likely to be 11.42 per cent.

The yield on the 10-year bond was at 8.61 per cent in afternoon trade, level with its previous close but six basis points off its morning high.

The partially convertible rupee strengthened slightly after the data, but then edged back to 42.80 per dollar.

The Reserve Bank of India (RBI) on Tuesday raised its key lending rate by 50 basis points to 8.5 per cent, its highest in six years, and hiked banks’ reserve requirements by 50 basis points in an aggressive move to combat inflation.

The RBI had also raised the repo rate by 25 basis points on June 11.

The central bank’s next official policy review is on July 29, although, as with the last two moves, it does not have to wait until then to tighten policy.

On Tuesday, the RBI said higher energy prices were no longer a temporary phenomenon, and said overall demand pressures in the economy were strong.

I think it is set to cross 12 per cent soon. Inflation has been continuously going up and it looks like we are yet to see the peak, said Dharmakirti Joshi, principal economist at CRISIL, a ratings agency.

Even today, inflation is latent because increases in fuel prices have not kept pace with high oil prices. —Reuters