India's consumer price inflation quickened more than economists estimated, adding pressure on central bank governor Raghuram Rajan to keep interest rates elevated even after factory output slowed. The consumer price index rose 7.96 per cent last month from a year earlier, compared with an upwardly revised 7.46 per cent in June, the Statistics Ministry said. Industrial production rose 3.4 per cent in June, compared with a 5.6 per cent gain predicted in a separate survey and a revised 5 per cent in May. Finance Minister Arun Jaitley backed Rajan's August 5 decision to keep the benchmark interest rate unchanged at 8 per cent for a third meeting as below-normal rainfall threatens to stoke Asia's fastest inflation. The highest borrowing costs among the region's largest economies risk damping growth that's essential to narrow the budget deficit to a seven-year-low. "There are uncertainties along the way including geopolitical risks and the monsoon," said Shubhada Rao, an economist at Yes Bank. "There are challenges to the central bank target of 6 per cent, which will require improved supply side measures and a dominant role played by fiscal policy." Rajan plans to slow consumer price inflation to less than 8 per cent in January next year and 6 per cent in 2016. While the nearest goal is "well within reach", he said there were upside risks to the longer-term target. Monsoon rains, which account for more than 70 per cent of annual rainfall and water about half of India's farms, are the main threat to inflation. Rainfall was 17 per cent below average as of August 11, according to the weather office, putting India on course for its driest year since 2009. A crop failure can spur consumer prices in the world's second-most populous nation, where food accounts for about 50 per cent of the CPI basket.
