Inflation likely nudged up to 6.95% in August

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India's rate of inflation probably picked up in August from July's near three-year low as poor summer rains drove up food prices, a Reuters poll showed, giving the central bank even less room to cut policy rates next week to reinvigorate economic growth.

While central banks elsewhere are trying to ease monetary conditions to counter a global slowdown, the Reserve Bank of India (RBI) has consistently flagged high inflation as a key risk for Asia's third largest economy.

Wholesale prices rose 6.95 per cent year-on-year in August, slightly higher than July's 6.87 per cent, according to a poll of 32 economists.

Forecasts ranged from 6.75 per cent to 7.30 per cent and economists said there was more pain to come as the effects of the weak monsoon rains feed into other parts of the economy.

"There are a lot of upside risks to inflation going ahead, so the timing of a rate cut would be a very close call," said Upasna Bhardwaj, economist at ING Vysya Bank.

The central bank meets on Sept 17 and analysts polled in a separate Reuters survey said they expect the repo rate to be unchanged at 8 per cent for a fifth straight month, despite India's slowing economic growth.

The inflation rate has averaged a little over 7 per cent this year and although it remains above the RBI's perceived comfort level of 5 per cent, it is lower than the 9.52 per cent average through 2010 and 2011.

Food and fuel costs make up over a third of the wholesale price index and analysts said a lag effect from rising global crude oil prices was still to be felt in India.

The central bank has placed the onus on the government to pull the economy out of the rut and remove supply-side bottlenecks to ease inflation.

The economy grew an annual 5.5 per cent in the quarter that ended in June, languishing near its slowest pace in three years, driven by a rebound in construction and financial services.