India's inflation accelerated sharply to close to six percent in July as a weak rupee pushed up import costs, data showed Wednesday, deepening worries about the slowing economy.
The Wholesale Price Index, India's closest-watched cost-of-living gauge, rose to 5.79 percent from a year earlier, up nearly a percentage point from 4.86 percent the previous month.
The July reading far outstripped market forecasts of a five percent year-on-year rise.
The increase was driven by higher fuel imports and other costs after India's rupee hit new lifetime lows against the dollar in the past month.
Politically sensitive food prices climbed by 9.74 percent in June while the cost of onions -- a staple in every Indian diet -- soared by 145 percent on an annual basis, according to the commerce ministry data.
The government has been desperate to tame inflation -- especially of food -- and revive the economy as it seeks a third term with elections due by May 2014.
But the weak rupee and accelerating prices after months of slower inflation has curbed the central bank's room to cut rates to stimulate an economy growing at five percent, its slowest pace in a decade.
Crop damage from heavy monsoon rains also drove up prices in July.
The central bank cut rates three times in 2013 following an aggressive hiking spree but has been forced to tighten monetary policy to try to stem the rupee's fall.
Economists say further rate cuts could lead to an even weaker rupee, push up import costs more and widen India's gaping current account deficit -- the broadest measure of trade -- which the bank calls the "biggest risk" to the economy.
Meanwhile, the currency fell by more than a third of a rupee to 61.50 rupees to the dollar in daytime trade despite steps announced by the government earlier this week to try to narrow the current account deficit and arrest the unit's fall.