Inflation in India is rising at its fastest rate in more than three years as global commodity prices rise, and prompting fears of a tighter monetary policy that could endanger the country's economic renaissance.

Indian wholesale prices rose at an annual rate of 7.4 per cent in the week to March 29, up from 7 per cent in the previous week and wrongfooting economist predictions for a flat reading. As recently as the first week of February the gauge stood at just 4 per cent, well below the central bank's 5 per cent comfort threshold.

Opposition politicians have pounced on the figures, which are seen as deeply embarrassing for the Indian Government.

Rising commodity prices are pushing up the costs of basic goods around the world, with the price of foodstuffs and industrial raw materials at historical highs. Oil touched a record $112.21 (£56.91) per barrel this week in New York. Wheat prices have more than doubled in Chicago over the past year and touched a record high of $13.495 a bushel in February. The price of rice, a staple food across South Asia, has increased by more than 40 per cent in some markets since January.

Soaring prices are fanning inflation across the region. In China, Indonesia and Pakistan, inflation is above 8 per cent. Consumer prices in Colombo, the Sri Lankan capital, have risen about 24 per cent in the past year, according to Bloomberg, the financial data provider.

With protests at higher food costs already seen in countries such as Burkina Faso, Cameroon and Ivory Coast, the World Bank has given warning that higher prices could lead to food riots in more than 30 countries.

The Indian Government, which must call a general election before next May, is highly sensitive to the rising costs of basic goods as even small rises in food hit India's army of poor voters hard.

In an effort to temper price rises, the Government has already cut import duties on edible oils and banned the export of pulses and most types of rice.The Government has also leaned heavily on steel manufacturers, pressing them into making “voluntary” price cuts or risk mandatory price caps.

Yesterday it withdrew export incentives for goods including cement. Economists now expect a further rise in the cash reserve ratio, the proportion of deposits commercial lenders need to place with the central bank before the end of April. Tighter monetary policy contributed to a deceleration in India's annual pace of economic growth to 8.4percent in the three months to December, down from an 18-year high of 9.6 per cent in the year to March 31 last year.

Economists at Goldman Sachs said they expect a 0.5 percentage point rise In the repo rate, the rate at which the Indian central bank lends short-term money to banks. The repo rate was increased by 0.24 percentage points at the end of last month, to 7.75 per cent.

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