NEW DELHI (Bloomberg) – India’s inflation accelerated at the fastest pace in more than three years, underscoring the threat from rising food prices that prompted the government to announce that it would crack down on hoarding.

Wholesale prices rose 7 percent in the week ended March 22 from a year earlier, faster than the previous week’s 6.68 percent, the Ministry of Commerce and Industry said in New Delhi. A Bloomberg News Survey of 16 economists forecast a 6.64 percent gain. Stocks and bonds fell.
Trade Minister Kamal Nath said on Friday the government will prevent profiteering from rising prices of essential commodities, joining nations worldwide in trying to keep food affordable. Prime Minister Manmohan Singh’s government wants to curb inflation to fend off criticism by opposition parties and prevent public unrest before general elections.
“We will not hesitate to take the strongest possible measures, including using some of the legal provisions that we have, against hoarding,” Nath said in Singapore.
Accelerating inflation buttressed expectations that the central bank will allow the rupee to strengthen and raise borrowing costs as soon as this month. Singh’s Congress party lost ground in most state polls last year because of rising consumer prices. The government has announced a $15 billion loan waiver for farmers to shore up support among the nation’s more than 700 million rural dwellers before elections due by May 2009.
-----------------------Central bank ready
Reserve Bank of India Governor Yaga Venugopal Reddy said on March 31 that the bank is ready to take steps to keep prices in check. Singh scrapped import duties on edible oils and maize and banned exports of pulses and rice in an attempt to temper prices in an emergency cabinet meeting on the same day.
“The central bank will have no option but to raise rates” later this month, said Tushar Poddar, an economist at Goldman Sachs Group Inc. in Mumbai. “We also expect the central bank to encourage the rupee to gain to curtail prices.”
Still, the central bank may seek to avoid using interest rates as a tool to curb inflation because of concerns about slowing growth, economists said.
“I would expect interest rates not to be raised at this time,” said Shashanka Bhide, chief economist at the National Council of Applied Economic Research in New Delhi. “Simply because there is also concern with respect to growth. There may be other measures so that there is no excessive growth in liquidity and money supply.”
------------------Market reaction
Bonds reversed earlier gains following the inflation announcement. The price on the most-traded 7.99 percent note due July 2017 fell 0.29, or 29 paise per 100 rupee face amount, to 100.35 as of 12:10 p.m. in Mumbai. The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 1.9 percent to 15,531.59.
The government’s fiscal measures will have a moderating effect on inflation, ICICI Bank Ltd. Chief Executive Officer K.V. Kamath said in Mumbai.
The central bank may not raise interest rates because that may hurt companies, said L.V. Prasad, chief currency trader at IndusInd Bank Ltd. in Mumbai
“Raising interest rates is a solution but it might hit companies hard,” Prasad said. “I think it will wait and watch to see what happens to inflation after the government took the fiscal measures recently.”
---------------------Edible oil
Palm oil prices rose 56 percent in the past year, reaching a record last month, and wheat in Chicago has almost doubled in the past year to an all-time high of $13.495 a bushel on Feb. 27. Crude oil gained 5.8 percent in the first quarter, and is up 62 percent from a year ago.
“The current spike in inflation is being caused primarily by higher global commodity prices in agriculture, fuel and metals feeding through to domestic inflation,” Poddar said.
Record raw-material prices have fanned inflation worldwide, prompting governments to impose price controls and curb exports of essential commodities.
Philippine inflation accelerated at 6.4 percent from a year earlier, the fastest pace in 20 months in March, a report showed yesterday. China, Indonesia and Pakistan all have inflation rates of more than 8 percent. Sri Lanka’s was 23.8 percent in March.
India’s central bank kept the key repurchase rate unchanged at 7.75 percent at the last monetary policy announcement on Jan. 29. The next statement is scheduled for April 29.
Reddy has raised the central bank's key policy rates nine times since October 2004 and the cash reserve ratio, or the proportion of deposits commercial banks need to place with the central bank, five times since December 2006.
India may settle for slower growth in its fight against inflation, according to Finance Minister Palaniappan Chidambaram. Chidambaram expects the $906 billion economy to grow at about 8 percent in the year starting April 1, the weakest pace since 2005.
The inflation rate released on Friday is the fastest since prices gained 7.07 percent in the week ending Dec. 4, 2004.
The Commerce Ministry revised the inflation rate for the week ended Jan. 26 to 4.78 percent from 4.11 percent. The government revises the rate from two months ago after receiving additional price data.