UPDATE 1-India inflation hits 12.6 pct, cbank action expected

(Adds details, analyst comments and background)

By Rajkumar Ray

NEW DELHI, Aug 21 (Reuters) - India's inflation rate jumped above 12.5 percent in early August, and analysts said it could rise as high as 14 percent before further policy tightening by the central bank would start to see price pressures moderate.

The wholesale prices index INWPI=ECI, India's most widely watched price measure, rose 12.63 percent in year to Aug. 9, up from the previous week's 12.44 percent rise and the highest since annual numbers in the current series became available in 1995.

Analysts said the inflation rate, which matched the median forecast in a Reuters poll, showed there was still pressure from food and oil prices that would take inflation well above 13 percent in coming months.

"We continue to believe that inflationary pressures will be on the upside, with inflation likely to peak at 13.5 percent by end-September, said Indranil Pan, chief economist at Kotak Mahindr Bank in Mumbai.

"We expect the central bank to tighten monetary policy further."

Other economists saw inflation peaking at around 14 percent in the final three months of 2008.

The Reserve Bank of India lifted its main lending rate three times in June and July, taking the repo rate to seven-year high of 9 percent. A hike in banks' reserve requirements, which takes effect at the end of August, should soak up cash and help avoid knock-on price hikes from higher fuel prices.