May 2 (Bloomberg) -- India's inflation accelerated at the fastest pace in more than three years, vindicating the central bank's decision to order commercial lenders to increase reserves twice last month.

Wholesale prices rose 7.57 percent in the week ended April 19 from a year earlier, after gaining 7.33 percent in the previous week, the government said in a statement in New Delhi today. Economists had expected a 7.42 percent increase.

Prime Minister Manmohan Singh, seeking to stay in power in elections due next year, has adopted a series of measures to tame inflation that has doubled in the last five months on soaring food and commodities costs. Faster gains in prices prompted the Reserve Bank of India to raise its cash reserve ratio to a seven-year high.

``The government may take more fiscal measures as inflation will remain elevated for the next few months,'' said Rajeev Malik, senior economist at JPMorgan Chase & Co. in Singapore. ``Additionally, more monetary tightening cannot be ruled out.''

Rising demand for housing and record investment by companies is spurring demand in India's $912 billion economy for products including steel and cement, driving up prices. That prompted the government on April 29 to scrap import duties on steel products including pig iron, hot-rolled coils, ferrous alloys and zinc and impose an export tax on other steel products to augment local stocks.

Pig Iron

Prices of cast iron spun pipes jumped 51 percent in the week to April 19 from a year earlier and basic pig-iron prices rose 8 percent, today's report showed.

Manufactured products inflation, with a 63.75 percent weight in the wholesale price index basket, rose 7.42 percent, the highest in 43 weeks. Tea prices soared 17 percent.

Finance Minister Palaniappan Chidambaram today said the inflation will be curbed, with food prices being the first to ease. The government will take further measures to contain prices, he said speaking to reporters in the southern Indian city of Bangalore.

To add to the government's efforts to rein in inflation, the central bank on April 29 unexpectedly ordered lenders to set aside more reserves, raising the cash reserve ratio to 8.25 percent from 8 percent, the highest since March 2001.

The monetary and fiscal steps will help moderate inflation in the next two to three months, central bank Governor Yaga Venugopal Reddy said after last month's policy statement.

`Prudent Policy'

The yield on the 8.24 percent note due April 2018 fell 8 basis points, or 0.08 percentage points, to 7.84 percent from 7.92 percent yesterday, as of the 5:30 p.m. close in Mumbai.

The central bank said it expects inflation of as much as 5.5 percent in the year to March 31, higher than its previous year's target of 5 percent. The Reserve Bank may raise the so- called cash reserve ratio for the third time this year to as high as 8.75 percent, according to a Bloomberg News survey of nine economists.

``Raising the cash reserve ratio was a prudent policy response to the difficult challenge of slowing growth yet rising inflation,'' said Sonal Varma, a Mumbai-based economist at Lehman Brothers Inc. ``A repurchase rate hike would have been too damaging for an economy already weakening.''

                       Week Ended    Week Ended     Percentage
                        April 23      April 19        Change

Primary articles         237.9         237.1           0.3
Fuel, power              342.5         342.1           0.1
Manufactured products    198.3         197.6           0.4
Food products            203.2         203.2        unchanged
Edible oils              189.7         189.7        unchanged
Cement                   221.1         221.1        unchanged
Iron & steel             361.1         357.1           1.1
Pulses                   246.2         248.1          -0.8
Fibers                   199.4         195.3           2.1
Total                    227.5         226.9           0.3

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

Last Updated: May 2, 2008 08:26 EDT