New Delhi - India's annual rate of inflation soared to a three-year high of 7 per cent as Indian bourses fell by 3 per cent in a reaction to the development on Friday, officials said.

The inflation rate, based on the wholesale price index, shot up to 7 per cent mark for the week ended March 22, data released by the federal Commerce and Industry Ministry showed. It had last touched 7 per cent in December 2004.

The wholesale price index increased more than the market estimate of 6.62 per cent and the previous week's 6.68 per cent.

The inflation rate has more than doubled from 3.11 per cent on November 3, owing to a rising prices of essential items such as vegetables.

Statistics showed that in the span of one week between March 15 and March 22, vegetables were costlier by 4.9 per cent.

Prices of lentils were higher by 1.4 per cent, edible oils were up 1.6 per cent and cement prices remained unchanged.

Indian stock markets slumped as the news of inflation broke.

The benchmark 30-stock Bombay Stock Exchange recorded a loss of 3.09 per cent as the bourse lost 489.43 points to close the day's trade at 15,340 levels. Similarly, the broader 50-stock S&P CNX Nifty of the National Stock Exchange in New Delhi shed 2.61 per cent.

The government was expected to take further fiscal measures to contain the rising prices and boost the domestic supply situation by withdrawing incentives on export of at least 40 items including steel and cement, local media reported.

The federal Reserve Bank of India was also expected to take monetary measures including hiking interest rates to tighten the money supply.

The government has already reduced duties on imports of different varieties of edible oils, banned the export of rice and raised the minimum export price of the country's premium Basmati rice from 650 dollars per ton to 1200 dollars per ton.

But the government and economists expect that these measures will not influence prices before the end of the month.

"The inflation rate in the coming weeks will remain high as the pressures will remain," Suchita Mehta, an economist at the Standard Chartered Bank told the NDTV network.

"Government is taking several measures to check inflation and it will take some time for the prices to come down. Global factors are also responsible for it," Federal Minister for Agriculture Sharad Pawar said. (dpa)