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Food inflation falls to 16.3%

Food inflation falls to 16.3%
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First Published: Thu, Mar 18 2010. 02 00 PM IST
Updated: Thu, Mar 18 2010. 02 00 PM IST
New Delhi: India’s food price inflation eased for the second straight week in early March but fuel inflation rose, maintaining the case for the Reserve Bank of India (RBI) to raise borrowing rates at its April policy review.
Analysts said headline wholesale price inflation (WPI) would cross into the double digits by March before retreating over the next few months, but a pick-up in economic growth would keep WPI at high levels for the rest of the year.
Steepening inflation has seen markets pricing in a 25 to 50 basis point interest rate hike in April. Bond yields were steady on Thursday as the latest data did little to change those expectations.
“It (WPI) should peak towards the middle of the year and come off a little bit towards the end of the year, but still be high,” said Brian Jackson, an emerging-market economist with the Royal Bank of Canada in Hong Kong.
“You’re still getting some pressure from the fiscal side on total demand, and that sort of highlights that current policy rates are not appropriate given where we are.”
Data released on Thursday showed the food price index rose 16.30% in the year to 6 March, lower than an annual rise of 17.81% in the previous week.
It was the second straight weekly easing of food price inflation and analysts expected the trend to continue, echoing policymakers’ comments that high inflation was due to supply shortages and would cool off as the new, winter-sown harvest reached the market.
The fuel price index rose 12.68% in the year to 6 March, up from an annual rise of 11.38% in the previous week. The government had hiked state-set motor fuel prices at the end of February.
Key policymakers have said headline inflation would ease over the next two months, after the finance minister said it could top 10% in March following a reading of 9.89% in February.
But in a sign the government was giving the green light to a rate hike, a top policy adviser said the RBI ought to carefully consider a return to a normal monetary policy.
Government officials have had until recently called for the RBI to ensure any possible rate hike does not put the country’s economic recovery at risk.
The central bank has to balance managing the government’s record $100 billion borrowing plan for the 2010-11 fiscal year with supporting growth and taming inflation.
Rising prices have sparked opposition-backed street protests and made the government reluctant to push through reforms such as relaxing fuel price controls, even though the ruling Congress party faces no risk of losing power anytime soon.
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First Published: Thu, Mar 18 2010. 02 00 PM IST
More Topics: Inflation | WPI | CPI | Food prices | RBI |