account of the monsoon effect on perishables like onions and the consistent fuel price adjustment impacting transportation costs. India definitely has entered a stagflationary phase".
A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI:
"Obviously this leaves RBI in a difficult situation because there is evidence that weak demand is having an effect on pricing power but still overall inflation is quite high on the retail side also. This means inflation expectation will continue to rule high.
"So the issue is current overnight rate at 10.25 percent is too high but also returning to an overnight rate of 7.25 percent may not be an option for the RBI. It is a challenging task for the RBI and communicate it to the market.
"Developments in the currency market suggest that RBI should be in a position to start reversing its tightening measures, however, they have to be careful as market could interpret it as tolerating higher inflation."
* The partially convertible rupee trimmed gains to trade at 62.78 per dollar from 62.50 before the data.
* The benchmark 10-year bond yield was trading at 8.51 percent after the data from 8.43 percent.
* The main share index turned negative. It was trading 1 percent higher beforehand.
* The 1-year swap rate rose 8 bps to 9.22 percent, while the benchmark 5-Yr swap rate rose 4 bps to 8.35 percent, traders said.
Soaring food prices drive India's headline inflation to six-month high
(Reuters) - India's headline inflation hit a six-month high in August, driven by a surprise surge in food prices, hardening the case for central bank governor Raghuram Rajan to keep interest rates high at his first policy meeting later this week.
Food inflation accelerated to a three-year high of 18.18 percent in August, government data released on Monday showed, driving overall inflation to a higher-than-expected 6.1 percent.
Recent government moves to increase fuel prices also spurred the jump in the Wholesale Price Index.
Economists polled by Reuters had expected a headline reading of 5.80 percent, compared with 5.79 percent in July.
Late planting and disruptions in supplies of vegetables and onions due to heavy summer rains have fueled food inflation. Onion prices jumped