Inflation surged to 5.45 per cent, the highest in 18 months, with Finance Minster P Chidambaram attributing the rise to supply side constraints of essential commodities like pulses.
"It is a supply side problem. We have to manage it," he said on responding to the rise in inflation that almost reached the borderline of the maximum 5.5 per cent forecast by Reserve Bank for this fiscal.
RBI has estimated 5-5.5 per cent inflation for 2006-07.
The wholesale price-based annual inflation rose to 5.45 per cent for the week ended November 18, the highest so far this year and highest after 5.60 per cent on May 14, 2005.
To stem prices, the government on Wednesday slashed petrol price by Rs two per litre and diesel by Re one.
"It should help in easing (inflation) to some extent, but it (inflation) is mostly driven by primary products," Chidambaram had said reacting to the price cut.
This was an addition to the series of steps taken this year by Government and Reserve Bank including import relaxation and hike in short term lending rates respectively to keep prices under check.
Though prices of some items have been contained, there has been an upward movement in prices of essential food items like pulses, wheat, sugar and vegetables so far this fiscal. Inflation has remained at over 5 per cent since September 30.
During the week ended November 18, prices increased for wheat, gram, masur, iron ore, cement, edible oils, ayurvedic medicines and basic metals.
With economy growing by 9 per cent in the first half of FY'07, inflationary pressure is likely to continue in the remaining part of this fiscal.