Breaching the upper range of Reserve Bank's target of 5.5 per cent for this fiscal, inflation jumped to 5.58 per cent for the week ended December 30 mainly due to higher prices of food articles, some fuel items and a few manufactured products.
Inflation stood at 5.48 per cent in the previous week and 4.56 per cent in the corresponding period of the previous year.
Inflation at 5.58 per cent is this fiscal's highest, according to provisional estimates. However, as per the revised estimates inflation had already touched 5.61 per cent during the week ended October 21.
Poultry chicken, marine products, fruits, cotton seeds, gingelly seed, furnace oil, naphtha, epoxy resins became dearer. However, prices of eggs, gram, vegetables, tea, coffee declined.
The Cabinet had on Thursday given RBI flexibility to fix statutory liquidity ratio below the present floor of 25 per cent so that banks be given more credit. But with inflation crossing the 5.5 per cent mark, the central bank had a difficult choice to either attack inflation or provide more cash to the banking system for lending.
Already, credit has been growing at over 30 per cent for 20 months now, while deposit growth is around 20 per cent. RBI has already effected a hike in the minimum requirement of cash that banks have to keep with RBI to 5.50 per cent from 5 per cent of their total deposits.
This has sucked around Rs 13,500 crore (Rs 135 billion) from the system and pushed up short-term interest rates.
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