New Delhi: India’s annual food inflation rose for the third straight week, threatening to drive up the headline inflation into double-digits and putting more pressure on the Reserve Bank of India (RBI) to raise interest rates.
Soaring food prices also raise prospects of more street protests and political pressure on the Congress-led government.
A RBI deputy governor on Thursday played down, however, expectations of any central bank action ahead of its April policy review.
“Don’t expect any action between now and the next announcement unless there is a completely unanticipated, unwarranted event,” Subir Gokarn told reporters in New Delhi.
Food prices rose 17.9% in the 12 months to 30 January, higher than an annual rise of 17.6% in the previous week, data released on Thursday showed.
Fuel prices rose an annual 10.4% in the same week, following an upswing in world crude prices amid signs of a global recovery, further stretching household budgets.
The yield on India’s 10-year benchmark bond yield rose 3 basis points after the data, reflecting speculation that the central bank may tighten its policy ahead of its scheduled meeting.
The yield briefly revisited its 15-month high of 7.84% before edging down to 7.83%, up from Wednesday’s close of 7.78%.
Analysts expect high food prices, due to a poor harvest after the worst monsoon in 37 years, to push up the wholesale price index into double digits by March from 7.3% in December, above the central bank’s revised forecast of 8.5%.
Prime Minister Manmohan Singh last week said India’s farm output in 2009-10 would exceed initial estimates, raising prospects that food inflation would soon be controlled.
The government also decided to form a panel to recommend long-term measures to raise agricultural production and reduce the gap between farm gate and retail prices.
While rising food inflation is seen pressurising the central bank to take sterner measures such as raising interest rates ahead of its April policy review to prevent it from spilling over, it may also distract the government from pushing economic reforms.
On Wednesday, opposition-driven protests over rising food prices erupted near India’s parliament and in the east of the country, even as the government considers a proposal to liberalize fuel prices.
A government panel has advised eliminating price controls for gasoline and diesel and an income-linked rise in kerosene and cooking gas prices. But analysts say any hike in petrol and diesel prices would further drive broader inflation.