New Delhi: Driven by expensive food and manufactured items, inflation climbed to 13-month high of 9.78 per cent in August suggesting that frequent interest hikes by Reserve Bank since March 2010 has proved ineffective to contain price rise.

RBI, which is scheduled to review interest rate policy again on Friday, faces a dilemma of sorts as the Indian economy is confronted with high inflation and sliding growth. It raised interest rates 11 times in last 18 months.

Inflation, based on the Wholesale Price Index, went up from 9.22 per cent in July. The near double-digit inflation in August is highest since July 2010, when it was 9.98 per cent.

 "It (inflation) is perilously close to double digit.RBI is also watching the situation like the government, and collectively it would be possible for us to tackle the problem," Finance Minister Pranab Mukherjee said.

Chief Economic Advisor in the Finance Ministry Kaushik Basu said "there is no black and white answer... and RBI will have to balance between controlling inflation and dampening growth."

Inflation for June has been revised upwards to 9.51 per cent from the provisional estimate of 9.44 per cent, according to official data released on Wednesday.

In August food items on annual basis became expensive by 9.62 per cent, driven mainly by rising prices of onion, fruits and potato.

Prices of manufactured products, which have a weight of around 65 per cent in the WPI basket, went up by 7.79 per cent during the month.

Among food items, onions became expensive by 45.29 per in August, while fruit prices were up 22.82 per cent. Potatoes became expensive by 12.53 per cent.

Among manufactured items, edible oil became dearer by 12.94 per cent, tobacco product by 13.17 per cent, cotton textiles by 16.86 per cent and wood and wood products by 9.72 per cent.

"No doubt the RBI is in a dilemma, inflation control remains its prime agenda and so we expect interest rates to go by another 25 basis points," Crisil chief economist D K Joshi said.

Industrial production fell to a 21-month low of 3.3 per cent in July. The country's GDP growth also slipped to 18-month low of 7.7 per cent in April-June period.

India Inc has said that the rising cost of credit has slowed down investment, thereby hurting growth.

Chairman and Managing Director of Corporation Bank Ramnath Pradeep said RBI is likely to continue with its tight monetary policy and hike rates.

"If policy rates go up it will put pressure on banks to raise interest rates, both lending and deposit rates," he said.

This is the ninth consecutive month when inflation has stayed above the 9 per cent mark.

Inflation in overall primary articles, which have a share of over 20 per cent in the WPI basket, stood at 12.58 per cent in the month under review.

Non-food primary articles, which include fibres, oil seeds and minerals, became dearer by 17.75 per cent.

Inflation in the fuel and power segment stood at 12.84 per cent year-on-year in the month under review.

(Agencies)