New Delhi: The food price inflation rate fell to a five-month low, but the drop may not be enough to avert further interest-rate increases by the Reserve Bank of India (RBI).
Slight recovery: Food price inflation has fallen to 16.22% in the week ended 13 March, from 16.3% the previous week. Indranil Bhoumik / Mint
The index measuring wholesale prices of lentils, rice, vegetables and other food articles rose 16.22% in the week ended 13 March from a year earlier, after a 16.3% gain the previous week, according to a Thursday statement.
Last week, RBI unexpectedly raised borrowing costs for the first time in nearly two years, saying controlling price gains has become imperative after the main wholesale inflation gauge rose to a 16-month high. Morgan Stanley and IHS Global Insight said the central bank may increase rates again as early as next month.
“What matters for policy purposes are the manufactured product prices, which are expected to go up,” said Prasanna Ananthasubramaniam, chief economist at ICICI Securities Primary Dealership Ltd in Mumbai. “The fall in foods prices does not matter much.”
“RBI feels inflationary pressures are accentuated and there are risks of demand-side inflation accelerating,” Siddhartha Sanyal, an economist at Edelweiss Capital Ltd, said. He expects the central bank to raise its policy rates by another quarter point next month.
India and China are withdrawing stimulus steps as stronger consumer demand stokes inflation.
RBI governor D. Subbarao’s move came after Prime Minister Manmohan Singh’s top economic advisers described the current inflation rate as worrying, while HSBC Holdings Plc and Nomura Holdings Inc. said RBI was behind the curve in raising rates.
Subbarao said this week India risks a hard landing if inflation is not reined in. He raised the reverse repo rate to 3.5% from 3.25% and the repo rate to 5% from 4.75% after local markets closed on 19 March.
India’s wholesale-price inflation rate touched 9.89% in February, exceeding the central bank’s 8.5% forecast by March-end.
The governor raised borrowing costs before the bank’s scheduled 20 April monetary policy meeting after India’s industrial output gained 16.7% in January from a year earlier, following a 17.6% rise in December, the biggest jump since at least 1994.