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Food inflation at 10.05%, to stoke interest rate hike

Food inflation at 10.05%, to stoke interest rate hike
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First Published: Fri, Sep 02 2011. 12 59 AM IST
Updated: Fri, Sep 02 2011. 12 59 AM IST
New Delhi: Food inflation accelerated to a four-month high and exports surged, sustaining pressure on the central bank to raise interest rates even as growth slows.
An index measuring wholesale prices of farm products, including rice and wheat, rose 10.05% in the week ended 20 August from a year ago, the commerce ministry said in an emailed statement on Thursday.
Also See | Food inflation back in 10% territory (PDF)
Merchandise shipments jumped 81.8% to $29.3 billion (Rs 1.35 trillion) in July from a year ago, a separate report showed, the biggest increase since at least April 1995, according to Bloomberg data.
Gains in food prices have kept India’s inflation rate the highest among major economies in Asia, prompting central bank governor D. Subbarao to boost borrowing costs at a record pace since mid-March 2010.
While easing economic growth in the region has led nations from Malaysia to the Philippines to pause rate increases, the Reserve Bank of India (RBI) said last week price gains may remain stubborn.
“Inflation, including food prices, are still way above the central bank’s comfort level,” Jay Shankar, the Mumbai-based chief economist at Religare Capital Markets Ltd, said before the report. “RBI has no choice, but to go ahead with rate hikes.”
Shankar said he expects RBI to raise its repo rate by a quarter of a percentage point to 8.25% in the 16 September policy meeting. Subbarao has boosted RBI’s benchmark rate by 325 basis points since mid-March 2010, the fastest round of increases since the central bank was established in 1935, Bloomberg data shows.
India’s benchmark wholesale price inflation was 9.22% in July.
Consumer prices rose 6.5% in China, 4.61% in Indonesia, 4.7% in South Korea and 4.08% in Thailand that month.
In India, gross domestic product rose 7.7% in the three months ended 30 June from a year ago, a report showed this week, less than the 7.8% gain in the previous three months.
Favourable monsoon rains may help moderate inflation, finance minister Pranab Mukherjee said on 16 August. A revival in rainfall in August helped the country erase a deficit in precipitation in July, the weather office said last month.
India aims to boost foodgrain output to a record 245 million tonnes (mt) in the year that began on 1 July after harvesting an estimated 241.56 mt the year ago, according to the farm ministry.
Graphic by Sandeep Bhatnagar/Mint
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First Published: Fri, Sep 02 2011. 12 59 AM IST