Indian inflation has hit its highest level in more than three years, boosted by increasing energy and food costs. The rate of inflation jumped to 8.17% in the year to 21 August, the quickest pace since February, 2001.
The concern is interest rates may have to rise despite the government cutting a number of import duties to help offset the record surge in oil prices.
Analysts were wary about ringing alarm bells - being confident that consumer price growth will slow later this year.
"The number does not yet reflect the positive impact of fiscal measures undertaken by the government," said Rajeev Malik, an economist at JP Morgan. "Inflation should begin to ease going forward in September."
India is trying to tread a delicate line between driving growth and ensuring the economy does not overheat.
The country is already one of the world's fastest growing, and along with China is helping buoy oil prices with its thirst for crude.
In its annual policy statement delivered in May, the central bank forecast that the Indian economy would grow by 6.5% to 7% in the year to March 2005.
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