Earlier this week, Finance Minister P Chidambaram described inflation as the biggest challenge his government faced. A sense of just how big the challenge really is can be had from the latest inflation data that show the wholesale price index-based annual inflation rate moved up to an uncomfortable 7.83 per cent for the week ended May 3, an over 42-month high.

Coverage: Inflation, the silent killer

During the week, prices of items like edible oils, cement and iron and steel (which have seen government intervention) declined, but its impact on the index was negated by an across-the-board increase in prices of food, manufactured products and mineral oils (see chart).

As disconcerting, especially for the policy establishment, is the revision to the inflation number for the week ended March 8, 2008. From the earlier reported 5.92 per cent, the final inflation number announced today was 7.78 per cent, an astounding 186 basis points revision.

The revision implies that inflation has consistently been on the higher side than reported. Economists said as much, with Saugata Bhattacharya, vice-president, Axis Bank, saying the inflation rate would have been well over 8 per cent.

"At this rate of revision, it is likely that the actual inflation rate in mid-March would have been 8.5 to 9 per cent, up from the provisional 7 to 7.44 per cent," he said.

With further revisions expected for the remaining three weeks of March, not only will headline inflation average be higher for 2007-08, but it will also impact the numbers next year when the country will have slipped into election mode.

For the time being, inflation is not expected to moderate as commodity prices remain high and no significant upside seen in the supply side.

"Pressure on inflation will continue in coming weeks. The rate will clearly remain above 7.5 per cent for the next 2-3 months," said Dharmakirti Joshi, principal economist, Crisil.

An analysis by Business Standard suggests that for the week ended May 10, for which data will be released next Friday, the inflation rate will range between 7.67 per cent and 8.05 per cent, depending on how the index moves.

Reacting to the data, Finance Minister P Chidambaram said he expected inflation would moderate. "We are waiting for steel and cement price cuts to come into force. You have to be patient," he told media persons on Friday, adding the government reserved the right to take more administrative measures.

Rupee at 13-month low
The spot rupee reached a fresh 13-month low of 42.90 against the dollar following heavy purchase of the US currency by oil companies and banks but recovered to close at 42.51 in a volatile trading session.

The rupee opened stronger at 42.60 after closing at 42.75 against the dollar on Thursday due to strong sentiments in the global equity markets, dealers said. At these levels, exporters also started selling dollars, fearing an appreciation and the spot rupee reached an intra-day high of 42.30 against the dollar. Oil importers then rushed to buy dollars to make import payments.