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Food, fuel prices up; RBI action seen

Food, fuel prices up; RBI action seen
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First Published: Thu, Apr 01 2010. 02 27 PM IST
Updated: Thu, Apr 01 2010. 02 27 PM IST
New Delhi: India’s fuel inflation quickened in late-March and food prices climbed, making a double-digit headline inflation a near certainty, which could prompt the Reserve bank of India (RBI) to increase rates for the second time in as many months in April.
The fuel price index rose 12.75% in the 12 months to 20 March, higher than an annual rise of 12.68% in the previous week, data showed on Thursday. Fuel costs have risen following a hike in domestic fuel prices and an upswing in world crude prices.
The food price index rose an annual 16.35% in the same period, above the previous week’s reading of 16.22%. The RBI last week underscored the need to curb inflationary pressures fuelled by increased capacity utilisation and rising energy and commodity prices, reflecting a shift in its focus to contain the headline inflation that is close to 10%.
Markets have already priced in another rate hike of at least 25 basis points in April, after the central bank surprised the market last month with a quarter point rate rise citing rising inflation pressures.
Traders expect federal bond yields, which crossed 8% in March before retreating, to touch an over 18-month-high of 8.5% in the coming weeks on rate hike expectations and federal borrowing concerns.
The latest Reuters poll shows analysts expect rates to go up by another 100 basis points between now and end-December.
Headline inflation, which was initially driven by high food prices, is now getting a push from other segments. Inflation in manufacturing accelerated to 7.4% in February from 6.5 in January, a sign that inflation is fast becoming a demand-driven problem.
The government’s decision to raise motor fuel prices in major cities from Thursday to rein in fiscal deficit is likely to further stoke inflationary pressures.
Rising inflation has sparked street protests and opposition-led walkouts in Parliament, putting pressure on the Congress-led ruling coalition to find an effective and durable solution.
India’s top policy panel said in a report last month the country should aim for an average wholesale price inflation of around 5% and price stability was crucial for economic growth to benefit the broader population.
India, the world’s second fastest growing economy, is expected to grow 8.5% in the current fiscal year and 9% in the next.
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First Published: Thu, Apr 01 2010. 02 27 PM IST
More Topics: Inflation | Food price | RBI | Growth | GDP |